XG:AX  ;:.  P.  A, 

MANUAL 


1920 


•^•.-l-Nt:---:?-. 

NSiKfeM 


MICHIGAN  C.  P.  A.  MANUAL 


MICHIGAN 
C.  P.  A.  MANUAL 


STATE  BOARD  OF  ACCOUNTANCY 

1920 


COMPILED  BY 

DURAND  W.  SPRINGER 

SECRETARY-TREA  SURER 
ANN  ARBOR,  MICH. 


\» 


COPYRIGHT,  1920 
BY 

MICHIGAN  STATE:  BOARD  OF  ACCOUNTANCY 


ANN  ARBOR  PR£SS 
ANN  ARBOR 


PREFACE 

This  manual  has  been  prepared  by  the  Michigan  State  Board  of 
Accountancy  with  the  idea  that  it  will  show  the  business  public  and 
the  profession  in  general  the  scope  and  character  of  the  tests  which 
have  been  met  by  persons  holding  the  C.  P.  A.  degree  from  Michi- 
gan. It  will  enable  prospective  candidates  to  judge  for  themselves 
whether  they  are  prepared  to  pass  examinations  along  somewhat 
similar  lines.  It  will  permit  Accountancy  Boards  in  other  states 
to  determine,  in  cases  of  prospective  reciprocal  arrangements, 
whether  Michigan  measures  up  to  their  standards. 


4? 94 71 


TABLE  OF  CONTENTS 

Members  of  Michigan  State  Board  of  Accountancy I 

Register  of  Michigan  C.  P.  A.  Certificates 3 

Historical  Statement . . .  5 

First  Michigan  C.  P.  A.  Law — 1905 10 

Second  Michigan  C.  P.  A.  Law— 1913 12 

Third  Michigan  C.  P.  A.  Law— 1917 15 

Rules  of  the  Michigan  Board 17 

Application  for  C.  P.  A.  Certificate 19 

Suggested  Bibliography 22 

Examination  Questions 

Theory  of  Accounts 25  and  163 

Auditing 45  and  177 

Commercial  Law    67  and  191 

Practical  Accounting   97  and  209 

Economics  and  Public  Finance 235 

Synopsis  of  C.  P.  A.  Laws 237 

Michigan  Association  of  Certified  Public  Accountants 

Constitution    249 

By-Laws   252 

Members    257 

War  Activities 259 


MEMBERS  OF  THE 
MICHIGAN  STATE  BOARD  OF  ACCOUNTANCY 

JOHN  H.  CLEGG,  C.  P.  A.,  Detroit     ....  1905-1907 

HENRY  M.  ZIM HERMANN,  Pontiac           .          .  1905-1907 

GEORGE  A.  HORNER,  C.  P.  A.,  Grand  Rapids       .          .  1905-1911 

RAY  HART,  Midland 1907-1909 

NORVAL  A.  HAWKINS,  C.  P.  A.,  Detroit    .          .          .  1908-1913 

WILLIAM  W.  WEDEMEYER,  Ann  Arbor     .          .          .  1909-1912 

DURAND  W.  SPRINGER,  C.  P.  A.,  Ann  Arbor      .         .  1913- 

ARCIIIBALD  BROOMEIELD,  Big  Rapids  and  Detroit       .  1913-1920 

FREDERIC  A.  TII/TON,  C.  P.  A.,  Detroit     .          .         .  1913- 

WOODBRIDGE  N.  FERRIS,  Big  Rapids,  ex-officio  '       .  1913-1917 
ALBERT  E.  SLEEPER,  Bad  Axe,  ex-officio  .          .         . 
CLARENCE  G.  HILL,  Detroit  .                             .         . 


MICHIGAN  C.  P.  A.  M^N'U^L]  \'f ' :' >.  \' ;  \-/*  i  /,   3 


REGISTER  OF  CERTIFICATES  GRANTED  BY 
THE   MICHIGAN    STATE   BOARD    OF   ACCOUNTANCY 

This  list  indicates  the  year  when  the  certificates  were  granted,  the  per- 
sons to  whom  granted,  their  residence  at  the  time  when  granted,  and  their 
residence  January  i,  1920. 

1906  John  H.  Clegg — Detroit — Deceased 
George  A.  Homer — Grand  Rapids — Detroit 
Fred  Wixson — Detroit — Detroit 

James   E.   Hardman — Grand   Rapids — Toledo,   Ohio 

Charles  D.   Fleming — Detroit — Detroit 

Charles  H.  Winke — Grand  Rapids — Milwaukee,  Wis. 

Joseph  Horner — Grand  Rapids — Grand  Rapids 

Will  A.  Voss — Grand  Rapids — Grand  Rapids 

Durand  W.   Springer — Ann  Arbor — Ann  Arbor. 

Arthur  B.  Hulsapple — Grand  Rapids — Grand  Rapids 

Arthur  S.  Guerin — Detroit — Detroit 

Norman  E.  Webster,  Jr. — Kalamazoo — New  York,  N.  Y. 

William  D.  Gridley— Detroit— Detroit 

John   J.   Jerome — Detroit — Lansing 

Harry  Ruple — Bronson — Saginaw 

Robert  J.  Bennett— Detroit— Philadelphia,   Pa. 

William  H.   Brook— Detroit— Cleveland,  Ohio 

Howard  C.  Beck— Detroit— Baltimore,   Md. 

1907  Norval  A.  Hawkins — Detroit — Detroit 
Fred  T.  Gies— Detroit— Detroit 

William  W.  Washburne— Detroit— Philadelphia,  Pa. 

1908  George  C.  Brown — Detroit — Stnrgis 
Louis  H.  Turrell— Detroit— Detroit 

Melville  W.  Thompson — Jackson — New  York,  N.  Y. 

1909  Fred  E.  McCain— Detroit— Detroit 
Harold  S.  Gausby— Detroit— Toronto,  Can. 
Henry  F.  Tully— Detroit— Detroit 

1910  William  D.   Bonthron — Detroit — Detroit 
George  H.  Parks — Grand  Rapids — Grand  Rapids 
Frederic  A.   Tilton— Detroit— Detroit 

Fred  A.  Suter— Detroit— New  York,  N.  Y. 
1912  William  Leslie — Detroit — Detroit 

David  Smith— Detroit— Detroit 

Alex  Van  Oss— Detroit— New  York,  N.  Y. 
1913— Ralph  C.  Miller— Detroit— Detroit 

Louis  C.  Slay— Detroit— Detroit 

T.  L.  Whitford  Porte— Detroit— Detroit 

Arphaxed  Foy — Detroit — Detroit 


4  /.  ^  \/\  MICHIGAN  C.  P.  A.  MANUAL 

William    Butler — Detroit — Detroit 
Richard  A.  Stevenson — Detroit — Detroit 
Thomas  H.  Evans — Detroit — Detroit 
William  Tringham — Detroit — Detroit 
Glynn  F.  Blanchard — Detroit — Grand  Rapids 

1914  George  M.   Patterson — Grand  Rapids — Deceased 
William  C.  Rowland— Detroit— Detroit 
George  R.  Gibbs— Detroit— Detroit 

E.  Leroy  Coe — Detroit — Grand  Rapids 

Frank  G.  LaBonte— Detroit— Detroit 

C.  Earle  Neff— Detroit— Detroit 

Wiley  T.  Lyon — Grand  Rapids — Grand  Rapids 

1915  Cyril  N.'  Bullock — Detroit — Detroit 
William  T.   Sunley,  Jr.— Detroit— Detroit 
Charles  W.  Stewart — Detroit — Kansas  City,  Mo. 
Herbert  H.  Scott— Detroit— Detroit 

Walter  H.  Shultus — Grand  Rapids — Grand  Rapids 
Thomas  M.   Faddis — Detroit — Detroit 
Fred  W.  Morton— Detroit— Detroit 

1916  *Frank  C.   Patterson — Grand   Rapids — Saginaw 
*Eldon  E.  Dadson — Detroit — Detroit 
*Robert  L.  Turner— Detroit— Detroit 

J.  Lee  Boothe — Detroit — Detroit 

George  C.  Mortlock— Detroit— New  York,  N.  Y. 

Percy  A.  Kerr— Detroit— Detroit 

Gordon   E.  Townsend— Detroit— Battle   Creek 

George  C.   Goodrich — Detroit — Detroit 

Carlton  G.   Saunders — Grand  Rapids — Chicago 

Christopher  C.   Whitlock— Detroit— Detroit 

1917  *Lorenzo  D.  Burnell — Detroit — Detroit 
*George   D.   Bailey— Detroit— Detroit 

Francis  M.  Shaefer — Lansing — Lansing 

Hans  William  Fick — Grand  Rapids — Grand  Rapids 

Ansel  F.  Hosmer — Detroit — Detroit 

Charles  A.  Smith— Detroit— Detroit 

1918  *Ernest   B.   Butler— Detroit— Akron,   Ohio 

*Ralph  T.  Hollis Detroit— Detroit 

*John  A.  McDonald— Detroit— Detroit 
*Edward  M.  Stradley— Detroit— Detroit 
*Arthur  F.     Thayer— Detroit— Detroit 

Henry  Stefrens,  Jr.— Detroit— Detroit 
James  H.  Botz — Detroit — New  York,  N.  Y. 
James  C.  Dissette — Detroit — Monroe 
*Frank  H.  Jones — Detroit — Detroit 


MICHIGAN  C.  P.  A.  MANUAL  5 

*Clarence  A.  Niquette — Detroit — Detroit 
*Mortimer  A.  Davis — Detroit — Chicago 
*Earl  G.  Teeter— Detroit— Detroit 
^Frederick  C.   Blomfield — Detroit — Detroit 

Llewellyn  H.  Heinke — Grand  Rapids — Grand  Rapids 

Evan   T.   Ashman— Detroit— Detroit 

Richard  H.  Wolfe— Detroit-  Detroit 

1919  *Frank  E.  Seidman — Grand  Rapids — Grand  Rapids 

James  I.   Bailey — Detroit — Detroit 

George   N.   Atkinson — Detroit — Detroit 

Martin  Dowd — Grand  Rapids — Grand  Rapids 

Winfield  S.  Osborn — Detroit — Detroit 

Ralph  J.  Daly— Detroit— Detroit 
*James  Barr — Detroit — Detroit 
*Leslie  E.  Palmer— Detroit— New  York,  N.  Y. 
*Fred  P.  Higgins — Detroit — Detroit 
*William  G.  Ross — Detroit — Detroit 
*Marx  F.  Rosenthaler — Detroit — Detroit 

1920  *Jonathan  B.  Cook — Muskegon — Muskegon 
*Certincates  of  Registration  or  Authority. 

HISTORICAL  STATEMENT 

Accountancy  is  generally  considered  the  youngest  of  the  profes- 
sions and  yet  there  are  reftrences  to  it  that  show  considerable  age. 
The  earliest  known  mention  of  a  special  examiner  of  accounts  was 
in  Great  Britain  in  the  year  1285  and  occurs  in  Statute  XIII,  Ed- 
ward 1,  Cap.  11.  In  1299,  an  officer  is  spoken  of  as  the  Auditor  of 
the  Accounts  of  the  Corporation  of  the  City  of  London.  In  1581, 
the  College  of  Accountants  was  established  in  Venice,  Italy,  the 
same  being  an  organization  of  public  accountants. 

The  profession  of  accountancy  ranked  with  that  of  barrister  in 
Scotland  as  early  as  1650.  The  oldest  known  certificate  of  a  pro- 
fessional examiner  of  accounts  was  made  'by  Charles  Snell,  of  Lori- 
don,  in  1/20,  and  was  in  the  nature  of  a  formal  report  in  bankruptcy 
proceedings.  As  early  as  1730,  Bristol,  England,  had  a  person 
who  publicly  practiced  as  an  accountant  and  one  firm  in  the  same 
city  has  been  in  continuous  practice  as  public  accountants  since  1790. 
The  Edinburgh  directory  for  1773  listed  seven  accountants. 

October  23,  1854,  the  Society  of  Accountants  in  Edinboro  was 
given  a  Royal  Charter  and  became  the  first  body  of  professional 
public  accountants  to  receive  official  recognition.  In  1862,  the  Reg- 
istered Companies  Act  was  passed  by  the  English  Parliament.  The 
Institute  of  Chartered  Accountants  of  England  and  Wales  received 


6  MICHIGAN  C.  P.  A.  MANUAL 

a  Royal  Charter,  May  n,  1880,  and  now  has  a  membership  of 
over  five  thousand.  In  the  same  year,  a  charter  was  granted  to 
the  Association  of  Accountants  in  Montreal,  and  in  1902  to  the 
Dominion  Accountants  Association. 

The  first  association  of  accountants  in  the  United  States  was  the 
Institute  of  Accounts  organized  in  1882  in  New  York.  The  Ameri- 
can Association  of  Public  Accountants  was  incorporated  in  New 
York  in  1887  and  was  the  first  organization  in  this  country  where 
membership  was  confined  exclusively  to  professional  public  account- 
ants. In  1896,  New  York  passed  the  first  certified  public  accountant 
law  in  this  country  and  thus  formally  recognized  accountancy.  In 
March  of  1897,  the  Illinois  Association  of  Public  Accountants  and 
the  Pennsylvania  Association  of  Public  Accountants  were  organized. 
The  New  York  Society  of  Certied  Public  Accountants  completed 
its  organization  May  10,  1897.  In  1902,  the  Federation  of  Societies 
of  Public  Accountants  in  the  United  States  of  America  was  organ- 
ized at  Washington,  on  the  initiative  of  the  Illinois  Association,  and 
by  1905  it  had  enrolled  twenty-six  state  societies  with  about  five 
hundred  members.  The  American  Association  of  Public  Account- 
ants started  with  eight  members  in  1887  and  by  1896,  when  the  first 
C.  P.  A.  law  was  enacted,  had  increased  its  membership  to  seventy- 
five.  In  1905,  when  the  Federation  of  Societies  of  Public  Account- 
ants consolidated  with  the  American  Association  of  Public  Account- 
ants, the  membership  was  increased  to  587.  By  1911,  it  had  reached 
the  one  thousand  -mark,  and  in  1916  the  American  Association  had 
a  membership  of  1,238. 

At  the  29th  annual  meeting  of  the  American  Association  of  Pub- 
lic Accountants,  an  organization  of  constituent  societies  and  indi- 
vidual members,  held  in  1916,  it  was  merged  into  the  American  In- 
stitute of  Accountants,  consisting  entirely  of  individual  member- 
ships, the  Institute  having  been  incorporated  in  May  of  that  year. 
The  Institute  had  a  membership  of  1252  September  I  of  1919.  The 
Institute  has  endeavored  to  establish  a  uniform  standard  of  ac- 
countancy examinations  throughout  all  the  states,  and  has  offered 
its  questions  to  the  different  State  Boards  of  Accountancy.  The 
Michigan  Board  used  the  questions  in  the  examinations  held  in 
November,  1917,  May,  1918,  and  November,  1918. 

Articles  of  Association  of  the  "Incorporated  Michigan  Associa- 
tion of  Public  Accountants"  were  filed  with  the  Secretary  of  State 


MICHIGAN  C.  P.  A.  MANUAL  7 

at  Lansing,  May  3,  1901.  Its  chief  aim  was  to  unite  the  public  ac- 
countants of  Michigan  in  an  effort  to  secure  a  certified  public  ac- 
countant law.  When  the  legislature  of  1903  met,  former  Congress- 
man Edwin  Denby,  then  a  member  of  the  House  of  Representatives, 
introduced  a  bill  authorizing  the  appointment  of  a  State  Board  of 
Accountancy.  The  bill  passed  the  House,  but  failed  in  the  Senate. 
In  the  early  part  of  the  1905  meeting  of  the  legislature,  Senator 
Noble  Ashley. introduced  the  same  bill.  This  time  the  Senate  gave 
it  a  unanimous  vote  and  the  House  passed  it  by  a  large  majority. 
The  bill  was  signed  by  Governor  Warner  and  Michigan  became  the 
eighth  state  to  legally  recognize  the  .profession  of  public  account- 
ancy. After  the  passage  of  the  law,  amendments  were  made  to  the 
Articles  of  Association  of  the  Incorporated  Michigan  Association 
of  Public  Accountants  and  it  became  the  Michigan  Association  of 
Certified  Public  Accountants.  The  Michigan  Association  joined  the 
Federation  of  Societies  of  Public  Accountants  when  it  was  organ- 
ized and  transferred  its  membership  to  the  American  Association  of 
Public  Accountants  when  the  amalgamation  took  place  in  1905, 
retaining  same  until  1916,  when  society  membership  was  abolished. 

Since  1896,  all  the  states  except  two  have  passed  laws  recogniz- 
ing and  regulating  the  certified  public  accountant.  A  study  of  the 
results  of  the  examinations  which  have  been  given  shows  that  on 
an  average  two  out  of  every  five  who  have  taken  the  examination 
have  passed.  In  most  states,  waiver  clauses  permitted  the  granting 
of  certificates  to  those  accountants  who  had  been  in  practice  for  a 
definite  period  prior  to  the  passage  of  the  law  and  at  the  present 
time  practically  two  out  of  every  five  certified  public  accountants 
obtained  their  certificates  under  the  waiver  clause.  Shortly  after  the 
Michigan  law  was  passed,  the  following  communication  was  sent  to 
the  first  State  Board  of  Accountancy : 

"At  a  meeting  of  the  Incorporated  Michigan  Association  of  Public  Ac- 
countants, it  was  unanimously  voted  to  request  the  Michigan  State  Board 
of  Accountancy  not  to  issue  any  certificates  under  the  waiver  clause.  In 
some  states  the  question  has  already  arisen  as  to  the  relative  value  of  certifi- 
cates issued  after  examination  and  those  issued  under  the  waiver  clause,  to 
the  detriment  of  the  latter.  As  this  body  was  the  organization  which  secured 
the  passage  of  the  law  in  Michigan,  we  are  anxious  that  the  certificate  should 
represent  the  highest  possible  standard." 

The  request  was  granted,  and  Michigan  became  the  first  state 
not  to  issue  certificates  under  the  waiver  clause. 


8  MICHIGAN  C.  P.  A.  MANUAL 

The  Michigan  State  Board  of  Accountancy  has  held  eighteen 
examinations,  with  the  following  results : 

DATE  NO.  WRITING  ON  EXAM.  NO.  GRANTED  CERTIFICATES 

July,  1906          Clegg  and  Horner  2 

July,  1906   18  13 

December,  1906 3  3 

November,    1907    4  3 

June,  1908  7  3 

July,   1909   3  3 

June,  1910 5  4 

June,  1912 6  3 

June,  1913  7  4 

December,    1913    8  5 

June,  1914 5  4 

December,  1914  .......  5  3 

June,  1915   9  4 

December,  1915  10  3 

December,  1916 9  7 

November,  1917   4  4 

May,  1918   6  3 

November,   1918    10  3 

June,  1919 9—130  5—79 

The  Michigan  law  permits  reciprocity  with  other  states.  Re- 
ciprocal arrangements  have  been  entered  into  with  the  states  of 
California,  Maine,  New  York,  Ohio,  and  Wisconsin,  and  Certifi- 
cates of  Registration  have  been  issued  to  ten  accountants  from  these 
states.  The  rules  adopted  by  the  Michigan  Board  concerning  recip- 
rocal relations  provided : 

(a).  Certificates  may  be  registered  when  the  holder  has  estab- 
lished a  residence  or  a  place  for  the  regular  transaction  of  business 
in  the  state. 

(b).  Only  certificates  secured  by  examination  will  be  regis- 
tered. 

(c).  Certificates  will  only  be  registered  as  the  result  of  cor- 
respondence between  the  Michigan  Board  and  the  Board  of  the 
state  concerned  and  the  approval  of  the  Board  granting  the  original 
certificate  secured. 

An  amendment  to  the  law  passed  in  1917  permits  the  granting 
of  Certificates  of  Authority  to  lawful  holders  of  certificates  issued 
by  states  with  which  reciprocal  relations  have  not  been  established, 
or  where  the  certificate  was  received  under  the  waiver  clause,  or 
to  the  holder  of  a  certificate  as  a  Chartered  Accountant  granted 


MICHIGAN  C.  P.  A.  MANUAL  9 

under  the  laws  of  a  foreign  country.  Twelve  Certificates  of  Author- 
ity have  been  issued  by  the  Michigan  Board  to  accountants  from 
three  states,  Canada,  England  and  Wales,  and  Scotland. 

The  Journal  of  Accountancy  was  established  in  1905,  and  is  the 
official  organ  of  the  American  Institute  of  Accountants  as  well  as 
the  recognized  standard  magazine  of  accountancy  in  this  country. 

In  1881,  the  University  of  Pennsylvania  established  the  Wharton 
School  of  Finance.  Since  1898,  practically  all  colleges  and  univer- 
sities have  organized  Departments  of  Commerce,  Accounts,  and  Fi- 
nance, in  which  courses  in  accounting  are  offered. 

From  the  Journal  of  Accountancy  for  August,  1914,  we  quote: 

"Let  those  seeking  an  exact  statement  read  the  following : 

The  practice  of  accountancy  is  not  a  business  open  to  all,  but  a  personal 
right,  limited  to  a  few  persons  of  good  moral  character,  with  special  qualifi- 
cations ascertained  and  certified  after  a  long  course  of  study,  both  general 
and  professional,  and  a  thorough  examination  by  a  state  board  appointed 
for  the  purpose.  The  right  to  practice  accountancy  is  in  the  nature  of  a 
franchise  from  the  state  conferred  only  for  merit. 

"The  foregoing  is  probably  as  clear,  concise  and  accurate  a  state- 
ment of  the  functions  of  certified  public  accountancy  as  has  ever 
been  written,  and  it  is  interesting  to  investigate  its  source. 

"There  are  many  certified  public  accountants  who  are  inclined  to 
believe  that  accountancy  and  the  law  are  very  closely  related 
branches  of  professional  work.  There  are  others  equally  sure  that 
there  is  no  similarity.  But  even  these  latter  will  doubtless  admit 
the  correctness  of  the  foregoing  definition.  If  so  they  will  be  not  a 
little  amazed  to  learn  that  it  is  simply  a  paraphrase  of  a  decision  by 
the  Court  of  Appeals  of  New  York  on  the  question  of  unlawful 
practice  of  law  by  corporations,  collection  agencies,  notaries,  etc. 

"The  court  said :  "A  corporation  can  neither  practice  law  nor 
hire  lawyers  to  carry  on  the  business  of  practicing  law  for  it  any 
more  than  it  can  practice  medicine  or  dentistry  by  hiring  doctors  or 
dentists  to  act  for  it,"  and  then  followed  it  by  the  definition  given 
above,  merely  using  the  word  law  where  we  have  used  accountancy. 

"Lawyers  have  been  content  to  accept  this  definition  of  their  pro- 
fession. Accountants  will  probably  be  unanimous  in  accepting  it  as 
a  definition  of  accountancy. 

"To  those  public  accountants  who  still  cling  to  the  idea  that  certi- 
fied accountancy  may  lack  something  of  a  professional  status  we 
commend  a  consideration  of  the  fact  that  one  definition  fits  both  law 
and  accountancy  equally  well." 


io  MICHIGAN  C.  P.  A.  MANUAL 

FIRST  MICHIGAN  C.  P.  A.  LAW 


Act  92,  Laws  of  1905,  Approved  May  4,  1905,  Establishing  Michigan 
State  Board  of  Accountancy 


An  act  to  establish  a  board  of  accountancy,  to  provide  for  the  granting  of 
certificates  to  those  public  accountants  who  qualify  under  the  provisions 
of  this  act  and  to  provide  a  penalty  for  violation  thereof. 

The  People  of  the  State  of  Michigan  enact : 

SECTION  i.  Any  person,  residing  or  having  a  place  for  the  regular 
transaction  of  business  in  the  State  of  Michigan,  being  over  the  age  of 
twenty-one  years,  of  good  moral  character,  who  shall  have  received  from 
the  Governor  of  the  State  of  Michigan  a  certificate  of  his  qualifications  to 
practice  as  a  public  accountant,  as  hereinafter  provided,  shall  be  styled  and 
known  as  a  certified  public  accountant,  and  no  other  person  shall  assume 
such  title  or  use  the  abbreviation  C.  P.  A.,  or  any  other  words,  letters  or 
figures  to  indicate  that  the  person  using  the  same  is  such  certified  public 
accountant. 

SEC.  2.  Within  thirty  days  after  this  act  takes  effect,  the  Governor  shall 
appoint  three  persons  to  constitute  and  serve  as  a  Board  of  Accountancy. 
Two  members  of  this  board  first  appointed  shall  be  selected  by  the  Governor 
from  a  list  of  the  names  of  public  accountants  who  have  been  practicing 
in  the  State  of  Michigan  for  a  period  of  at  least  three  years,  one  of  whom 
shall  be  appointed  for  a  term  ending  January  first,  nineteen  hundred  eight, 
and  one  for  a  term  ending  January  first,  nineteen  hundred  ten,  and  upon 
the  expiration  of  each  of  said  terms  and  of  each  succeeding  term,  a  member 
shall  be  appointed  for  a  term  of  three  years :  Provided,  that  the  successors 
to  the  first  two  members  who  are  public  accountants  shall  be  selected  from 
the  holders  of  certificates  under  this  act.  One  member  of  this  board  shall 
be  a  practicing  attorney,  in  good  standing  in  the  courts  of  the  State  of 
Michigan,  appointed  in  the  first  instance  for  a  term  ending  January  first, 
nineteen  hundred  nine,  and  upon  the  expiration  of  said  term,  and  of  any 
succeeding  term,  a  member  shall  be  appointed  for  a  term  of  three  years, 
such  successors  to  be  practicing  attorneys  in  good  standing,  as  hereinbefore 
mentioned.  Any  vacancies  that  may  occur  from  any  cause  shall  be  filled  by 
the  Governor  for  the  unexpired  term  under  the  same  conditions  that  gov- 
ern regular  appointments. 


MICHIGAN  C.  P.  A.  MANUAL  1 1 

§EC.  3.  The  Board  of  Accountancy  shall  at  its  first  meeting,  formulate 
rules  for  its  own  guidance,  not  inconsistent  with  the  provisions  of  this  act, 
a  copy  of  which  shall  be  sent  to  all  public  accountants  in  the  state.  Satis- 
factory evidence  of  good  moral  character  shall  be  required  from  each  appli- 
cant for  this  certificate.  Examinations  of  persons  applying  for  certificates 
under  this  act  shall  be  held  at  least  twice  each  year  at  such  times  and  places 
as  applications  may  warrant.  The  time  and  place  for  holding  the  examina- 
tion shall  be  duly  advertised  at  least  three  consecutive  days  in  a  daily  news- 
paper published  in  Detroit,  Grand  Rapids,  Saginaw,  Marquette,  and  Hough- 
ton,  at  least  thirty  days  prior  to  the*  date  for  such  examination,  and  notice  of 
the  same  shall  be  mailed  to  all  holders  of  certificates  under  this  act  as 
well  as  applicants.  The  examination  shall  cover  the  following  subjects: 
theory  of  accounts,  practical  accounting,  auditing,  and  commercial  law  as 
affecting  accountancy.  The  fees  for  such  examination  shall  be  twenty- five 
dollars  for  each  applicant,  payable  to  the  treasurer  of  the  board  at  least 
ten  days  prior  to  the  holding  of  the  examination.  The  board  may  in  its 
discretion,  waive  the  examination  of  any  applicant  not  later  than  the  year 
nineteen  hundred  six,  who  in  addition  to  the  qualifications  mentioned  in  sec- 
tion one,  shall  have  been  a  practicing  public  accountant  in  this  State  for 
more  than  one  year  prior  to  the  passage  of  this  act.  Each  applicant  for 
whom  examination  is  waived,  shall  pay  to  the  treasurer  of  the  board  the 
sum  of  twenty-five  dollars  when  recommended  to  the  Governor  for  a  cer- 
tificate. The  board  shall  maintain  a  register  of  the  names  and  addresses 
of  all  persons  receiving  certificates  under  this  act.  The  members  of  the 
board  shall  receive  as  compensation  for  their  services  ten  dollars  per  day 
for  the  time  actually  spent  and  the  necessary  expenses  incurred  in  the  dis- 
charge of  their  duties  as  members  of  said  board:  Provided,  however,  That 
all  compensation  for  services  and  expenses  shall  not  exceed  the  amounts 
received  as  fees  from  applicants.  All  bills  for  expenses  and  salaries  sha'l 
be  allowed  in  open  meeting  of  the  board  and  shall  be  paid  from  the  fees 
received  under  the  provisions  of  this  act.  All  money  received  in  excess  of 
payments  shall  be  paid  into  the  State  Treasury  at  the  end  of  each  year, 
and  so  much  thereof  as  shall  be  necessary  to  meet  the  current  expenses  01 
said  board  shall  be  subject  to  the  order  thereof,  if,  in  any  year,  the  receipts 
of  said  board  shall  not  be  equal  to  its  expenses.  The  board  shall  make 
an  annual  report  to  the  Governor,  containing  a  full  account  of  its  proceed- 
ings, and  render  an  annual  financial  account  to  the  Board  of  State  Auditors. 

SEC.  4.  The  Governor  shall  issue  certificates  to  those  persons  who  are 
recommended  to  him  by  the  Board  of  Accountancy  as  having  qualified  under 
the  provisions  of  this  act.  The  Governor  may  revoke  any  certificate  for 
sufficient  cause,  after  written  notice  to  the  holder  thereof,  and  a  hearirg 
thereon,  and  shall  issue  such  notice  whenever  requested  to  by  the  board. 

SEC.  5.  The  Board  of  Accountancy  may,  in  its  discretion,  register  the 
certificate  of  any  certified  public  accountant  who  is  the  lawful  holder  of  a 
C.  P.  A.  certificate  issued  under  the  law  of  another  state,  and  may  issue 


12  MICHIGAN  C.  P.  A.  MANUAL 

to  such  certified  public  accountant  a  certificate  of  registration,  which  ^cer- 
tificate shall  entile  the  holder  to  practice  as  such  certified  public  accountant, 
and  to  use  the  abbreviation  C.  P.  A.  in  the  State:  Provided,  however,  That 
such  other  state  extends  similar  privileges  to  certified  public  accountants 
of  this  state.  The  regular  fee  of  twenty-five  dollars  shall  be  charged  for 
such  certificate.  Certificates  of  registration  may  be  cancelled  in  the  same 
manner  as  section  four  provides  for  the  revoking  of  certificates  issued 
under  this  act. 

SEC.  6  If  any  person  shall  hold  himself  out  to  the  public  as  having 
received  a  certificate  as  provided  in  this  act,  or  shall  assume  to  practice  as  a 
certified  public  accountant  or  use  the  abbreviation  C.  P.  A.,  or  any  other 
letters,  words  or  figures  to  indicate  that  the  person  using  the  same  is  such 
certified  public  accountant,  without  having  received  such  certificate  or  after 
the  same  shall  have  been  revoked,  he  shall  be  deemed  guilty  of  a  misde- 
meanor, the  penalty  for  which  shall  be  a  fine  of  not  less  than  one  hundred 
dollars  nor  more  than  five  hundred  dollars  for  each  offense  or  imprison- 
ment in  the  county  jail  for  a  period  not  exceeding  six  months. 

SEC.  7  Every  person  having  been  granted  a  certificate  under  the  pro- 
visions of  this  act,  shall  give  a  five  thousand  dollar  bond  to  the  Secretary 
of  State  before  entering  upon  his  duties,  for  the  faithful  performance  of 
the  same. 

Approved  May  4,  -1905. 


SECOND  MICHIGAN  C.  P.  A.  LAW 


Act  240,  Lazvs  of  1913,  Approved  May  7,   1913,  Establishing  Michigan 
State  Board  of  Accountancy 


An  act  to  establish  a  board  of  accountancy,  to  provide  for  the  granting  of 
certificates  to  those  public  accountants  who  qualify  under  the  provisions 
of  this  act  and  to  provide  a  penalty  for  violation  thereof. 

The  People  of  the  State  of  Michigan  enact: 

SEC.  i.  Any  person,  residing  or  having  a  place  for  the  regular  trans- 
action of  business  in  the  State  of  Michigan,  being  over  the  age  of  twenty- 
one  years,  of  good  moral  character,  who  shall  have  received  from  the  Gov- 
ernor of  the  State  of  Michigan  a  certificate  of  his  qualifications  to  practice 
as  a  public  accountant,  as  hereinafter  provided,  shall  be  styled  and  known 
as  a  certified  public  accountant,  and  no  other  person  shall  assume  such  title 
or  use  the  abbreviation  C.  P.  A.,  or  any  other  words,  letters  or  figures  to 
indicate  that  the  person  using  the  same  is  such  certified  public  accountant. 


MICHIGAN  C.  P.  A.  MANUAL  13 

SEC.  2  Within  thirty  days  after  this  act  takes  effect,  the  Governor  shall 
appoint  three  persons  to  constitute  and  serve  as  a  Board  of  Accountancy. 
Two  members  of  this  board  first  appointed  shall  be  selected  by  the  Governor 
from  a  list  of  the  names  of  public  accountants  who  have  been  practicing  in 
the  State  of  Michigan  for  a  period  of  at  least  one  year,  one  of  whom  shall 
be  appointed  for  a  term  ending  January  one,  nineteen  hundred  fourteen, 
and  one  for  a  term  ending  January  one,  nineteen  hundred  sixteen  and  upon 
the  expiration  of  each  of  said  terms  and  of  each  succeeding  term,  a  member 
shall  be  appointed  for  a  term  of  three  years :  Provided,  That  the  successors 
to  the  first  two  members  who  are  public  accountants  shall  be  selected  from 
the  holders  of  certificates  under  this  act.  One  member  of  this  board  shall 
be  a  practicing  attorney,  in  good  standing  in  the  courts  of  the  State  of 
Michigan,  appointed  in  the  first  instance  for  a  term  ending  January  one, 
nineteen  hundred  fifteen,  and  upon  the  expiration  of  said  term,  and  of  any 
succeeding  term,  a  member  shall  be  appointed  for  a  term  of  three  years, 
such  successors  to  be  practicing  attorneys  in  good  standing  as  hereinbefore 
mentioned.  Any  vacancies  that  may  occur  from  any  cause  shall  be  filled 
by  the  Governor  for  the  unexpired  term  under  the  same  conditions  that 
govern  regular  appointments,  and  every  member  shall  hold  office  until  his 
successor  is  appointed.  The  Governor  shall  be  an  ex-ofikio  member  of 
this  board. 

SEC.  3.  The  Board  of  Accountancy  shall  formulate  rules  for  its  guid- 
ance, not  inconsistent  with  the  provisions  of  this  act.  Satisfactory  evidence 
of  good  moral  character  shall  he  required  from  each  applicant  for  this  certi- 
ficate. Meetings  of  said  Board  of  Accountancy  shall  be  held  at  least  twice 
each  year  and  the  times  and  places  for  holding  said  meetings  shall  be  adver- 
tised at  least  three  consecutive  days  in  a  daily  newspaper  published  in  De- 
troit, Grand  Rapids,  Saginaw,  Marquette  and  Houghton  at  least  thirty  days 
prior  to  the  date  for  such  meetings,  and  notice  of  the  same  shall  be  mailed 
to  all  applicants  for  certificates  under  this  act.  Applicants  must  have  com- 
pleted at  least  a  high  school  course  of  study,  or  have  received  an  equivalent 
education,  prior  to  the  date  of  application  and  must  have  had  at  least  two 
years'  continuous  practical  experience  in  public  accounting  immediately  pre- 
ceding the  date  of  application,  the  efficiency  of  such  experience  to  be  judged 
by  the  board.  Applicants,  when  so  required,  must  appear  in  person  before 
the  board  to  answer  any  question,  or  produce  any  evidence  to  sustain  such 
facts  as  may  be  necessary  to  determine  the  qualifications  of  the  applicant  as 
prescribed  by  this  act  and  rules  of  the  board.  A  filing  fee  of  twenty-five 
dollars  for  each  applicant  payable  to  the  treasurer  of  the  board,  shall  accomr- 
pany  all  applications  for  certificates  under  this  act  and  the  members  of  the 
board  shall  receive  as  compensation  for  their  services,  ten  dollars  per  day 
for  the  time  actually  spent  and  the  necessary  expenses  incurred  in  the  dis- 
charge of  their  duties  as  members  of  said  board :  Provided,  however,  That . 
all  compensation  for  services  and  expenses  shall  not  exceed  the  amount 
received  as  fees  from  applicants.  All  bills  for  expenses  and  services  shall 
be  allowed  only  in  open  meeting  of  the  board  and  shall  be  paid  from  fees 


I4  MICHIGAN  C.  P.  A.  MANUAL 

received  under  the  provisions  of  this  act.  All  money  received  in  excess  of 
payments  shall  be  paid  into  the  state  treasury  at  the  end  of  each  year  and 
so  much  thereof  as  shall  be  necessary  to  meet  the  current  expenses  of  said 
board  shall  be  subject  to  the  order  thereof,  if,  in  any  year,  the  receipts  of 
said  board  shall  not  be  equal  to  its  expenses.  The  board  shall  make  an 
annual  report  to  the  Governor,  containing  a  full  account  of  its  proceedings, 
and  render  an  annual  financial  account  to  the  board  of  state  auditors.  The 
board  shall  maintain  a  register  of  the  names  and  addresses  of  all  persons 
applying  for  and  receiving  certificates  under  this  act.  The  board  shall  rec- 
ommend to  the  Governor  of  the  state  for  C.  P.  A.  certificates  only  those  ap- 
plicants who  shall  meet  the  full  requirements  as  called  for  by  the  rules  of 
the  board  and  who  have  complied  with  the  requirements  of  this  act.  The 
provisions  of  this  act  shall  not  be  construed  to  invalidate  any  certificate 
heretofore  granted  under  act  number  ninety-two  of  the  Public  Acts  of  nine- 
teen hundred  five. 

SEC.  4.  The  Governor  shall  issue  certificates  to  the  persons  who  are 
recommended  to  him  by  the  Board  of  Accountancy  as  having  qualified  under 
the  provisions  of  this  act.  The  Governor  may  revoke  any  certificate  for 
sufficient  cause,  after  written  notice  to  the  holder  thereof,  and  a  hearing 
thereon,  and  shall  issue  such  notice  whenever  requested  to  by  the  board. 

SEC.  5.  The  Board  of  Accountancy  may  in  its  discretion  register  the 
certificate  of  any  certified  public  accountant  who  is  a  lawful  holder  of  a 
C.  P.  A.  certificate  issued  under  the  law  of  another  state,  and  may  issue  to 
such  certified  public  accountant  a  certificate  of  registration,  which  certificate 
shall  entitle  the  holder  to  practice  as  such  certified  public  accountant  and 
to  use  the  abbreviation  C.  P.  A.  in  the  state :  Provided,  however,  That  such 
other  state  extends  similar  privileges  to  certified  public  accountants  of  this 
state.  The  regular  fee  of  twenty-five  dollars  shall  be  charged  for  such 
certificate.  Certificates  of  registration  may  be  cancelled  in  the  same  manner 
as  sections  four  and  seven  provide  for  the  revoking  or  lapsing  of  certificates 
issued  under  this  act.  No  certificate  of  registration  shall  be  issued  until  all 
the  provisions  of  section  seven  of  this  act  shall  be  complied  with. 

SEC.  6.  If  any  person  shall  hold  himself  out  to  the  public  as  naving  re- 
ceived a  certificate,  as  provided  in  this  act.  or  shall  assume'  to  practice  as 
a  certified  public  accountant,  or  use  the  abbreviation  C.  P.  A.,  or  any  other 
letters,  words  or  figures  to  indicate  that  the  person  using  the  .-same  is  such 
certified  public  accountant,  without  having  received  such  certificate,  or  after 
the  same  shall  have  been  revoked,  or  suspended  because  of  any  lapse  of 
the  surety  bond  as  provided  in  section  seven  hereof,  he  shall  be  deemed 
guilty  of  a  misdemeanor,  the  penalty  for  which  shall  be  a  fine  of  not  more 
than  five  hundred  dollars  for  each  offense  or  imprisonment  in  the  county 
jail  for  a  period  not  exceeding  six  months. 


MICHIGAN  C.  P.  A^  MANUAL  15 

SEC.. 7.  Every  person  prior  to  receiving  a  certificate  under  the  pro- 
visions of  this  act,  shall  give  a  five  thousand  dollar  surety  bond  to  the  Sec- 
retary of  State  before  entering  upon  his  duties  for  the  faithful  performance 
of  the  same  and  shall  maintain  such  surety  bond  without  lapses  under  penalty 
of  automatic  revocation  of  his  certificate  concurrent  with  any  lapse  of  ?aid 
bond:  Provided,  however,  That  said  certificate  shall  automatically  become 
of  full  force  and  effect  at  any  future  date  by  the  filing  of  such  a  bond  after 
any  period  so  elapsed.  All  audit  reports  signed  as  certified  public  accountant 
must  bear  the  date  of  his  C.  P.  A.  certificate  and  the  date  of  expiration  of 
said  surety  bond  and  shall  be  signed  only  by  actual  holders  of  certificates 
under  this  act  in  person,  and  any  corporation,  association,  company,  firm  or 
partnership  signatures  thereto  will  be  considered  as  a  violation  of  this  act 
and  subject  to  prosecution  thereof  and  the  signature  of  such  C.  P.  A.  so 
affixed  to  anv  audit  report  shall  be  permitted  only  to  such  C.  P.  A.  having 
performed  the  examination  in  person.  Whenever  any  typewritten,  stereo- 
typed, lithographed,  engraved,  printed  or  written  matter  is  issued  either  in 
the  form  of  letters,  circulars,  audit  reports,  or  otherwise  indicating  C.  P.  A. 
service,  it  shall  be  considered  a  violation  of  this  act  unless  the  signature 
thereto  shall  be  that  of  a  holder  of  a  certificate  issued  as  herein  provided. 

SEC.  8.  All  acts  or  parts  of  acts  in  anywise  inconsistent  herewith  are 
hereby  repealed. 

Approved  May  7,  1913. 


THIRD  MICHIGAN  C.  P.  A.  LAW 


Act  240,  Laws  of  1913,  Approved  May  7,1913,  Establishing 
Michigan  State  Board  of  Accountancy 


Amended  by  Act  155,  Laws  of  1917,  Approved  May  2,  1917,  Being  Sections 

six-  thousand  eight  hundred  ninety-eight  to  six  thousand  nine  hundred  five 

of  the  Compiled  Laws 

An  act  to  establish  a  board  of  accountancy,  to  provide  for  the  granting  of 
certificates  to  those  public  accountants  who  qualify  under  the  provisions 
of  this  act,  and  to  provide  a  penalty  for  violation  thereof. 

The  People  of  the  State  of  Michigan  enact: 

SEC.  i.     Same  as  1913  Law. 

SEC.  2.     Same  as  1913  Law. 

SEC.  3.     Same  as  1913  Law. 

SEC.  4.     Same  as  1913  Law. 

SEC.  5.  The  Board  of  Accountancy  may  in  its  discretion  register  the 
certificate  of  any  certified  public  accountant  who  is  a  lawful  holder  of  a  C. 
P.  A.  certificate  under  the  laws  of  another  state,  and  may  issue  to  such  cer- 


16  MICHIGAN  C.  P.  A.  MANUAL 

tified  public  accountant  a  certificate  of  registration,  which  certificate  shall 
entitle  the  holder  to  practice  as  such  certified  accountant,  and  to  use  the 
abbreviation  C.  P.  A.  in  the  state:  Provided,  however,  That  such  other 
state  extends  similar  privileges  to  certified  public  accountants  of  this  state. 
The  regular  fee  of  twenty-five  dollars  shall  be  charged  for  such  certificate. 
Certificates  of  registration  may  be  cancelled  in  the  same  manner  is  section 
four  provides  for  revoking  certificates  issued  under  this  act. 

SEC.  6.  The  Board  of  Accountancy  may  in  its  discretion  grant  author- 
ity to  a  person  who  is  a  lawful  holder  of  a  C.  P.  A.  certificate  issued  under 
the  law  of  another  state,  with  which  state  reciprocal  relations  have  not  been 
established  or  when  said  certificate  was  secured  under  a  waiver  clause,  to 
use  the  title  certified  public  accountant  or  the  abbreviation  C.  P.  A.  followed 
by  the  name  of  the  state  issuing  such  certificate.  It  may  also,  in  its  discre- 
tion, grant  authority  to  a  person  who  is  a  lawful  holder  of  a  certificate  is- 
sued under  the  laws  of  a  foreign  country  to  use  the  title  chartered  account- 
ant or  the  abbreviation  C.  A.  The  regular  fee  of  twenty-five  dollars  shall 
be  charged  for  such  grant  which  grant  may  be  cancelled  in  the  same  manner 
as  section  four  provides  for  revoking  certificates  issued  under  this  act. 

SEC.  7.  The  use  of  other  terms  and  titles  than  certified  public  ac- 
countant or  chartered  accountant  and  abbreviations  than  C.  P.  A.  or  C.  A. 
as  indicating  specially  granted  authority  is  prohibited,  but  no  person  shall 
be  denied  the  right  to  indicate  membership  in  any  society  of  professional  pub- 
lic accountants  which  may  be  officially  recognized  by  the  Michigan  State 
Board  of  Accountancy.  All  certificates  issued,  registered,  or  authorized 
under  the  terms  of  this  act  are  given  to  individuals.  Firms  and  corpora- 
tions may  not  use  the  terms  certified  public  accountants  or  chartered  ac- 
countants. If  any  person  shall  hold  himself  out  to  the  public  as  having 
received  a  certificate,  a  certificate  of  registration,  or  a  grant  of  authority  as 
provided  in  this  act,  or  shall  assume  to  practice  as  a  certified  public  account- 
ant or  a  chartered  accountant  or  use  the  abbreviations  C.  P.  A.  or  C.  /-Y.  or 
any  other  words,  letters  or  figures  to  indicate  that  the  person  using  the  ^alne 
is  a  certified  public  accountant  or  a  chartered  accountant  or  an  accountant 
with  specially  granted  authority  without  having  received  such  certificate,  or 
registration,  or  grant  of  authority,  or  after  the  same  shall  have  been  re- 
voked, or  if  such  person  shall  as  a  member  of  a  firm  or  corporation  permit 
the  use  in  any  manner  of  the  terms  certified  public  accountants  or  chartered 
accountants  in  connection  therewith,  he  i^hsll  be  deemed  guilty  of  a  misde- 
meanor the  penalty  of  which  shall  be  a  fine  of  not  more  than  five  hundred 
dollars  for  each  offense  or  imprisonment  in  the  county  jail  for  a  period  of 
not  exceeding  six  months. 

Approved  May  2,  1917. 


MICHIGAN  C.  P.  A.  MANUAL 


RULES  GOVERNING  EXAMINATIONS  FOR  C.  P.  A. 
CERTIFICATES    UNDER    THE    LAWS    OF    MICHIGAN 


'Act  240,  Laws  of  1913,  as  Amended  by  Act  155,  Laws  of  1917, 
Creating  the  State  Board  of  Accountancy 


Examinations  will  include  questions  on  the  following  subjects 
as  affecting  Accountancy : 

(a)  Theory  of  Accounts  (c)     Auditing 

(b)  Practical  Accounting  (d)     Commercial   Law 

(c)     Public  Finance  and  Political  Economy 

The  examination  in  practical  accounting  will  occupy  two  half- 
day  periods  and  each  of  the  other  examinations  will  occupy  one 
half -day  period,  each  period  being  approximately  four  hours. 

All  applications  should  be  made  on  blanks  furnished  by  the 
Board,  and  no  application  will  be  considered  unless  accompanied  by 
the  fee  of  $25.00  and  filed  with  the  Secretary  of  the  Board  at  least 
ten  (10)  days  prior  to  the  date  set  for  the  examination. 

Applicants  must  be  over  the  age  of  twenty-one  (21)  years  and 
of  good  moral  character. 

Applicants  must  have  completed  at  least  a  high-school  course  of 
study,  or  have  received  an  equivalent  education,  prior  to  the  date 
of  application. 

The  act  of  filing  an  application  for  an  examination  shall-  be 
deemed  to  be  and  shall  constitute  an  agreement  upon  the  part  of 
the  applicant  that  he  will  observe  and  conform  to  the  require- 
ments expressed  in  these  rules. 

Ample  notice  will  be  given  to  each  applicant  of  the  time  and 
place  selected  for  holding  the  examination,  and  each  applicant  must 
be  present  and  prepared  to  engage  in  the  work  promptly  at  the 
hours  appointed.  Failure  to  do  so,  will  be  considered,  at  the  dis- 
cretion of  the  Board,  just  cause  for  exclusion  and  forfeiture  of  the 
amount  of  the  fee. 

All  answers  to  questions  submitted  must  be  written  on  blanks 
provided  by  the  Board. 

A  candidate  to  pass  an  examination  must  receive  a  percentage 
of  seventy-five  (75%)  nl  each  of  the  five  subjects. 


1 8  MICHIGAN  C.  P.  A.  MANUAL 

Questions  and  examination  papers  are  the  property  of  the 
Board  and  will  not  be  available  at  any  time  for  inspection. 

The  answers  to  the  questions  on  each  subject  must  be  completed 
within  the  time  allotted. 

In  the  event  of  the  applicant  failing  to  pass  the  examination,  he 
may  be  re-examined  after  one  (i)  year,  in  accordance  with  the  Act 
and  rules  of  the  Board,  upon  the  payment  of  an  additional  fee  of 
$25.00:  Provided,  however,  That  if  he  shall  have  passed  four  of  the 
five  subjects,  he  shall  be  permitted  to  sit  for  an  examination  on  the 
fifth  subject  at  the  next  examination  without  payment  of  an  addi- 
tional fee.  In  case  of  a  second  failure  in  said  fifth  subject,  an  ad- 
ditional fee  of  $25.00  will  be  charged  if  the  applicant  desires  to  take 
another  examination. 

Applicants,  when  so  required,  must  appear  in  person  before  the 
Board  to  answer  any  questions,  or  produce  any  evidence  to  sustain 
such  facts  as  may  be  necessary  to  determine  the  qualifications  of 
the  applicant  as  prescribed  by  the  Act  and  the  rules  of  the  Board. 

Any  applicant  before  being  entitled  to  receive  a  C.  P.  A.  certifi- 
cate must  have  had  at  least  two  (2)  years'  continuous  practical  ex- 
perience in  public  accounting  immediately  preceding  the  date  of  ap- 
plication. The  sufficiency  of  such  experience  will  be  judged  by  the 
Board. 

The  Board  will  recommend  to  the  Governor  of  the  State  for 
C.  P.  A.  certificates  only  those  applicants  who  have  met  in  full  the 
provisions  of  the  Act  and  the  rules  of  the  Board. 

Examinations  will  be  held  twice  each  year  and  at  such  times  and 
places  as  applications  may  warrant. 

The  Board  will  not  issue  Certificates  of  Registration  or  Certifi- 
cates of  Authority  to  holders  of  certificates  received  from  other 
states  or  countries  if  the  holders  are  now  engaged  in  private  ac- 
counting work,  but  in  case  the  holders  return  to  public  accounting 
work  an  additional  two  years  of  experience  will  not  be  required  be- 
fore granting  such  certificates. 

Certificates  of  Registration  and  Certificates  of  Authority  will 
only,  be  granted  when  a  person  has  established  a  residence  or  a  place 
for  the  regular  transaction  of  business  in  Michigan. 

These  rules,  or  any  of  them,  may  be  amended  at  any  meeting  of 
the  Board. 

All  communications  should  be  addressed  to  the  Secretary  of  the 
Michigan  State  Board  of  Accountancy. 


MICHIGAN  C.  P.  A.  MANUAL  19 

APPLICATION  FOR  C.  P.  A.  CERTIFICATE 

To  the  State  Board  of  Accountancy, 
Michigan 

GENTLEMEN  : 

[     ]  .  Request  for  Examination 

I  hereby  make  application  to  be  examined  by  your  Board  for  a 
certificate  entitling  me  to  practice,  be  styled,  and  be  known  as  a 
Certified  Public  Accountant  under  rules  adopted  by  your  Board  in 
accordance  with  the  provisions  of  section  four  of  Act  240,  Laws 
of  1913,  as  amended  by  Act  155,  Laws  of  1917.  I  am  enclosing 
certified  check  for  $25.00  payable  to  your  order. 

[     ]     Request  for  Registration 

I  hereby  make  application  to  have  a  Certificate  of  Registration 
issued  me,  based  on  a  C.  P.  A.  certificate  received  from  the  State  of 

.  .as  the  result  of  an  examination  held  at.  . 


on ,  so  that  I  may  be 

entitled  to  practice,  be  styled,  and  be  known  as  a  Certified  Public 
Accountant  under  the  rules  adopted  by  your  Board  in  accordance 
with  the  provisions  of  section  five  of  Act  240,  Laws  of  1913,  as 
amended  by  Act  155,  Laws  of  1917.  I  am  enclosing  certified  check 
for  $25.00  payable  to  your  order. 

[     ]     Request  for  Authority 

I  hereby  make  application  to  have  a  Certificate  of  Authority  is- 
sued me,  based  on  a  certificate  received  under  conditions  named  in 
No.  15  of  this  application,  so  that  I  may  be  entitled  to  practice,  be 
styled,  and  be  known  as  a  Certified  Public  Accountant  or  a  Char- 
tered Accountant  under  rules  adopted  by  your  Board  in  accordance 
with  the  provisions  of  section  six  of  Act  240,  Laws  of  1913,  as 
amended  by  Act  155,  Laws  of  1917.  I  am  enclosing  a  certified 
check  for  $25.00  payable  to  your  order. 

1.  Full  name   

2.  Date  and  place  of  birth 


3.     A  citizen  of  the  United  States? How  long 


20  MICHIGAN  C.  P.  A.  MANUAL 

4.     Preliminary  Education,   (a)   Graduate  of  high  school  at 

Date  graduated   

(b)     If  not  a  high  school  graduate,  what  equivalent  education 
have  you  had? 


5.  Experience  in  the  study  of  accounting  during  the  last  five  (5) 
years : 

During 

During 

During 

During 

During 

6.  State  occupations  or  business  during  the  five  (5)  years  prior 
to  engaging  in  the  practice  of  public  accounting : 

During During 

During During 

During During 

7.  How  long  engaged  in  the  practice  of  public  accounting? 

State  where  and  by  whom  employed  or  whether  on  your  o\vn 
account  during  the  past  five  (5)  years: 

During 

During 

During 

During 

During 

8.  Residence  this  date 

9.  Residence  during  the  past  ten  (10)  years: 

During During 

During During 

During During 

During During 

During During 

10.  Present  office  or  place  of  business 

n.  Present  business  or  occupation 


MICHIGAN  C.  P.  A.  MANUAL  2i 

12.  Is  it  your  present  purpose  to  continue  in  the  practice  of  pub- 
lic  accounting  ?    

13.  Xame  live  concerns  and  give  addresses  on  whose  books  you 
have  worked  professionally,  either  as  principal  accountant  or  as  as- 
sistant, during  the  past  two  years : 

Xame   Address 

Xame Address 

Xame   Address  , . . 

Xame   Address  

Name Address  

14.  Give  the  names  and  addresses  of   three  persons,  neither  of 
whom  must  be  a  relative  or  a  business  associate,  to  whom  we  may 
refer : 

Xame   Address   

Xame '. Address   

Xame   Address   

15.  Give  any  other  general  information  which  may  aid  the  Board 
in  passing  on  your  application  : .  . 


Signature  of  Applicant, 
Date 19 ..  

STATE  OF  MICHIGAN,    ^ 

I  ss. 
County  ot J 

The   undersigned,   being   duly   sworn,   says   that   the    foregoing 
statements  are  true. 

Signed (L.   S.) 

Subscribed  and  sworn  to  before  me  this 

day  of A.  D.   19 

Notary  Public. 


My  commission  expires 


22  MICHIGAN  C.  P.  A.  MANUAL 


SUGGESTED  BIBLIOGRAPHY 

In  1912,  the  Committee  on  Education  made  a  report  to  the 
American  Association  of  Public  Accountants,  listing  certain  books 
which  were  considered  by  them  worthy  of  recommendation  to  all 
students  of  accountancy.  The  Committee  on  Education  of  the 
American  Institute  of  Accountants  suggested  several  other  books 
in  a  report  prepared  for  the  1919  meeting.  We  are  presenting  the 
combined  list  with  a  few  others  added : 

A.  B.  C.  of  Wall  Street  S.  A.  Nelson 

Accountancy  of  Investment Charles  E.  Sprague 

Accounting  Practice  and  Procedure A.  Lowes  Dickinson 

Accountancy  Problems,  Vols.  i  and  2 Leo  Greenlinger 

Accounting  Systems Edward  Moxey 

Accounting  Theory  and  Practice — 2  Vols R.  B.  Kester 

Accounts  of  Executors  and  Testamentary  Trustees 

J.    Hardcastle 

Advanced  Accounting  L.  R.  Dicksee 

American  Association  of  Public  Accountants'  Year  Book 
American  Institute  of  Accountants'  Library  Catalog 

Applied  Theory  of  Accounts P.  J.  Esquerre 

Auditing  Theory  and  Practise R.  H.  Montgomery 

Book  Keeping  and  Accounting H.  M.  Rowe 

Business  Finance W.  H.  Lough 

Commercial  Geography C.  C.  Adams 

Corporate  Organization  and  Management '.  .T.  Comyngton 

Corporation  Accounting R.  J.  Bennett 

Corporation  Finance ..W.  H.  Lough 

Corporation  Finance Edward  S.  Meade 

Corporation  Finance  and  Accounting H.  C.  Bentley 

Cost  Accounting L.  W.  Hawkins 

Cost  Accounting   Nicholson -Rohrback 

C.   P.   A.    Problems   and    Solutions Henry    C.    Cox 

Digest  of  National  Banking  Laws A.  S.  Pratt  &  Sons 

Economics  of  Business E.  S.  Meade 

Economics  of  Efficiency N.  A.  Briscoe 

Economics   of   Enterprise H.   J.    Davenport 

Elementary  Accounting  Problems John  R.  Wildman 

Elementary  Economics    C.   M.   Thompson 

Elements    of   Business    Law E.    W.    Huffcut 

Estimating  Cost-Keeping  and  Profit-Making 

Metal  Worker,  Plumber  and  Steam  Fitter 
Evolution   of   Industrial   Society Richard   T.   Ely 


MICHIGAN  C.  P.  A.  MANUAL  23 

Factory  Costs  Frank  E.  Webner 

File  of  Publications  on  Terminology  and  Uniform  Systems 

of  Accounting  by  U.  S.  Census  and  Labor  Bureau 
File  of  Rules  and  Forms  of  Interstate  Commerce  Commission 
Fraud  in  Accounts — No.  30  of  the  Accountants'  Library 

Getting  the  Most  Out  of  Business E.  St.  Elmo  Lewis 

Graphic  Methods  for  Presenting  Facts  W.  C.  Brinton 

History  of  Accounting  and  Accountants Richard  Brown 

History  of  Commerce C.  Day 

History  of  Commerce  and  Industry C.  A.  Herrick 

How  the  World  Makes  Its  Living Logan  G.  McPherson 

How  to  Find  Factory  Costs C.  B.  Thompson 

Increasing  Human  Efficiency  in  Business W.  Dill  Scott 

Introduction    to    Statistical    Methods Horace    Secrise 

Journal  of  Accountancy 

Lombard  Street  Walter  Baghot 

Manual  of  Commercial  Law .  .E.  W.  Spencer 

Mercantile  Credits  and  Collections Charles  A.  Meyer 

Modern  Accounting Henry  R.  Hatfield 

Municipal  Administration  and  Accounting. .  .Fred'k  A.  Cleveland 

Office  Management    Lee   Galloway 

Organized  Banking E.  E.  Agger 

Outlines   of   Economics Richard   T.    Ely 

Partnership  Accounts  P.  Child 

Personality Harry  C.   Spillman 

Philosophy  of  Accounts Charles  E.  Sprague 

Practical  Work  of  a  Bank. W.  H.  Kniffin 

Principles  of  Accounting . .  Paton  and  Stevenson 

Principles  of  Bond  Investment Lawrence  Chamberlain 

Principles  of  Depreciation E.  A.  Saliers 

Principles  of  Wealth  and  Welfare Charles  L.  Raper 

Psychology  and  Industrial  Efficiency ...Hugo  Munsterberg 

Railroad   Finance Cleveland  and  Powell 

Revised  or  Annotated  Statutes  of  the  State  of  Residence 

Scientific  Management Frederick  A.  Parkhurst 

Selected  Readings  in  Economics C.  J.  Bullock 

Shop  Management Frederick  W.  Taylor 

Short  Rules  for  Commercial  Calculations Patrick  Murphy 

The  Selling  Process N.  A.  Hawkins 

Theory  and  Practice  of  Estate  Accounting.  .Frederick  H.  Baugh 

Theory  of  Business  Enterprise Thorstein  Veblen 

Twelve  Principles  of  Efficiency H.  Emerson 

Unified  Accounting  Methods  for  Industrials.  .Clinton  E.  Woods 
Work,  Wages  and  Profits H.  L.  Gantt 


THEORY  OF  ACCOUNTS 


MICHIGAN  C.  P.  A.  MANUAL  27 


MICHIGAN  STATE  BOARD  OF  ACCOUNTANCY 


EXAMINATION 
for  the  degree  of 

CERTIFIED  PUBLIC  ACCOUNTANT 
July  27-28,  1906 


THEORY  OF  ACCOUNTS 


Saturday,  July  28,  1906,  from  8:00  A.  M.  to  12:00  M. 


75  credits  necessary  to  pass  out  of  a  possible  100  credits. 


Each  complete  answer  will  receive  10  credits.  Do  not  repeat 
questions  on  examination  papers  but  write  answers  only,  designating 
the  questions  by  number.  The  intelligence  indicated  by  answers 
will  be  considered  in  marking  the  applicants,  as  well  as  the  technical 
accuracy  of  such  answers. 


1.  Define  bookkeeping.     State  various  kinds  with  explanations. 

2.  What  books  are  necessary  for  recording  the  transactions  of  an 
incorporated  company?     State  the  use  of  each  book  mentioned. 

3.  Define  the  following: 

(a)  Fixed  assets  and  fixed  liabilities. 

(b)  Current  assets  and  current  liabilities. 

4.  Define  Merchandise  account  and  state  how  in  your  opinion  it 
should  be  kept. 

5.  What  is  the  purpose  of  the  following  accounts  and  how  are  they 
created  on  the  books: 

(a)  Sinking  funds?  (c)   Depreciation? 

(b)  Reserve  funds  ?  (d)   Goodwill? 

•6.  Name  the  various  forms  of  Capital  Stock,  with  full  explanations. 
7.    How  would  you  ascertain  the  profits  of  a  firm  whose  books 
are  kept  by  single  entry? 


28  .  MICHIGAN  C.  P.  A.  MANUAL 

8.  What  is  a  dividend?     State  when  and  how  dividends  become 
effective.     State  how  declaration  and  payment  of  dividends  are 
usually  recorded  in  books  of  account. 

9.  State  the  use  of  a  Private  Lock  Ledger  and  its  relation  to  the 
General  Ledger. 

10.    (a)   What  constitutes  Manufacturing  Cost? 

(b)  What  constitutes  Selling  Cost? 

(c)  What   relation   do   cumulative   preferred   stock   dividends 
bear  to  the  cost  of  operating? 


THEORY  OF  ACCOUNTS 


Friday,  December  21,  1906,  from  -8:00  A.  M.  to  12:00  M. 

1.  The  stock  of  a  mercantile  concern  is  partially  destroyed  by  tire 
or  flood.     The  books  of  account,  however,  are  saved.     How 
would  you  prepare  a  statement  showing  the  loss  ?    Explain  fully, 

2.  What  different  methods  have  come  under  your  observation  of 
ascertaining  the  cost  of  articles  manufactured?     Explain  each 
method  fully,  stating  which  in  your  opinion  is  preferable,  giving 
reasons. 

3.  A  manufacturing  company  purchased  a  large  stock  of  material 
during  the  year  at  low  prices  but  at  time  of  annual  inventory 
values  had  abnormally  increased.     How  in  your  opinion  should 
inventory  and  loss  and  gain  be  shown  on  the  books? 

4.  A   concern   inventories   its   property   and   makes   statement   of 
Assets  and  Liabilities  on  the  first  of  the  year.     The  business 
continues  and  up  to  Oct.   1st  $10,000.00  additional  capital  is 
paid  in.     Plant  account  during  the  same  period  increased  $5,- 
ooo.oo.    From  Trial  Balance  of  Oct.  ist,  how  would  you  deter- 
mine the  amount  of  merchandise  and  supplies  necessarily  on 
hand  to  show  neither  gain  or  loss  for  the  period  between  January 
ist  and  October  ist? 

5.  In  closing  the  books  of  a  concern  state  your  treatment  and  the 
relations  they  bear  to  Loss  and  Gain  of  the  following: 

(a)  Goods  purchased  on  consignment. 

(b)  Goods  sold  on  consignment. 


MICHIGAN  C.  P.  A.  MANUAL  29 

6.  You  are  requested  to  open  the  necessary  books  for  recording 
the   organization   and   business   operations   of   an   incorporated 
company  having  three  forms  of  capital  stock. 

(a)  State  what  books  are  necessary. 

(b)  Name  the  various  forms  of  Capital  Stock  and  how  created, 
stating  the  rights  and  privileges  of  each. 

7.  A  corporation  invests  its  capital  in  a  number  of  subsidiary  com- 
panies, each  subsidiary  company  having  a  distinct  organization, 
but  its  dividends  being  payable  to  the  parent  company.     The 
parent  company   decides  to   carry   insurance   for  all  the   sub- 
sidiary  companies   and   each   pays   in   to   the   parent   company 
monthly  a  specific  sum.    Fire  losses  as  incurred  are  payable  by 
the  parent  company.     How  are  such  entries  treated  and  what 
should  the  books  show,  also  what  entries  are  necessary  at  close 
of  fiscal  years? 

8.  How  are  the  profits  of  the  following  concerns  divided : 

(a)  Stock  Company? 

(b)  Co-partnership? 

(c)  Co-Operative  Association? 

9.  What  is  the  meaning  of   Watered   Stock  and   how   should  it 
appear  on  the  books  ? 

10.    Define: 

(a)  Quick  Assets.  (c)   Fixed  Charges. 

(b)  Floating  Debts.  (d)   Contingent  Liabilities. 


THEORY  OF  ACCOUNTS 


Friday,  November  ist,  1907,  from  8:00  A.  M.  to  12:00  M, 


1.  Wherein  do  the  books  of  a  co-partnership  differ  from  those  of 
a  corporation  in  the  same  line  of  business? 

2.  ( )n  taking  charge  of  a  set  of  books  kept  by  single  entry  belong- 
ing to  a  Produce  Company,  engaged  in  buying  and  selling  farm 
produce,    wholesale   and    retail,    how    would   you    suggest   that 
they  be  started  ? 

3.  Prepare  an  Assignee's  Account  furnishing  your  own  figures : 

(a)  On  taking  charge. 

(b)  Final  account. 


30  MICHIGAN  C.  P.  A.  MANUAL 

4.  On  buying  an  interest  in  a  business,   what  entries  should  be 
made  in  the  books  of  the  business : 

(a)  When  a  direct  sale  is  made  of  an  interest,  the  money  not 
to  be  used  in  the  business  ? 

(b)  When  the  money  paid  for  the  interest  in  the  business  is  to 
be  used  in  the  business  ? 

5.  Goods  are  shipped  from  a  factory  to  a  branch  store.  How  should 
the  invoice  be  made  out  in  order  that  the  proper  results  of  the 
business  should  be  shown  in  the  books  kept  at  the  factory? 

6.  State  the  points  of  difference  between  a  statement  of  receipts 
and  disbursements  and  a  statement  of  revenues  and  expenses. 

7.  Discuss  the  different  methods  of  dealing  with,  first,  Repairs, 
and  second,  Replacements  in  connection  with : 

(a)  A  concern  that  writes  off  annually  sufficient  depreciation 
to  cover  the  life  of  the  machinery. 

(b)  A  concern  where  no  depreciation  is  written  off  and  where 
it  is  claimed  the  machinery  is  kept  as  good  as  new. 

8.  Explain  fully  and  state  how  accounts  should  be  carried  upon 
the  books  with : 

(a)  Authorized  capital  stock.  (d)   Preferred  stock. 

(b)  Unsubscribed  stock.  (e)   Common  stock. 

(c)  Treasury  stock. 

9.  In  closing  the  books  of  a  concern  should  the  profit  and  loss 
account  be  affected  by  any  change  of  value  other  than  purchase 
or  sale  of  any  fixed  asset?     Show  how  such  changes  of  values 
can  be  entered  upon  the  books  without  including  the  same  in 
Profit  and  Loss  account. 

10.  Trace  the  various  operations  in  an  office  where  you  have  full 
charge  as  an  accountant  from  the  time  an  order  is  given  for  the 
purchase  of  material  until  such  material  is  paid  for,  to  protect 
the  company  from  any  possible  loss  in  the  transaction. 


THEORY  OF  ACCOUNTS 


Friday,  June  26,  1908,  from  2:00  P.  M.  to  6:00  P.  M. 


I.  Do  unsold  bonds  of  a  railroad  company  constitute  a  liability? 
If  they  do,  under  what  account  would  they  appear  in  the  ledger? 
Does  unsubscribed  stock  in  a  corporation  constitute  a  liability? 
If  it  does,  under  what  account  would  it  appear  in  a  ledger? 


MICHIGAN  C.  I'.  A.  MANUAL  31 

2.  State  in  what  respects : 
(a)   The  rights,  and 

( 1) )   The  duties  of  an  Executor  and  an  Administrator  differ. 

(c)  How  an  Executor  is  appointed. 

(d)  In  what  order  should  an  Executor  pay  the  debts  of  an 
estate  ? 

(e)  What  form  of  receipt  should  he  require  for  any  payments 
made  by  him  ? 

3.  Xame  five   (5)   classes  of  Bonds,  describing  briefly  each  class 
with  regard  to  issue,  purpose,  redemption,  -etc. 

4.  Should  a  manufacturing  establishment  invoice  its  sales  to  its 
branch  houses  at  cost  or  at  a  profit?    What  would  be  the  ad- 
vantages, for  either  the  factory  or  the  branches  by  either  of 
these  methods.     Explain  fully. 

5.  Give  your  opinion  regarding  the  following,  and  reasons: 

(a)  Should  ordinary  discount  of  2l/2%  a  month  be  considered 
as  a  trade  or  a  time  discount? 

(b)  Is  it  proper  to  take  credit  in  the  Balance  Sheet  for  dis- 
counts on  Purchase  Creditors'  Accounts? 

(c)  Whether  in  arriving  at  a  proper  amount  as  a  Reserve  for 
Bad  Debts,  the  length  of  credit  should  be  taken  into  account 
and  why? 

6.  Name  a  fair  allowance  for  depreciation  per  annum  on  the  fol- 
lowing plant  assets : 

Real  Estate,  including  fences,  sidewalks,  tracks,  etc. 

Buildmg  and  Building  Fixtures — fire-proof  construction. 

Factory  Equipment,  including  benches,  cupboards,  etc. 

Machinery,  both  iron  and  woodworking. 

Fixed  Tools,  both  iron  and  woodworking. 

Loose  tools,  both  iron  and  woodworking. 

Power  Plant. 

Electric  Wiring  and  Apparatus,  including  dynamos,  motors,  etc. 

Sprinkler  System  and  Fire  Equipment. 

Blower  System. 

Office   Furniture  and   Fixtures,   including  typewriters,   adding 

machines,  graphophones,  multigraphs,  etc. 
Horses  and  Mules. 
Wagons,  Harness  and  Trappings. 
Patterns,  iron  and  wood,  and  Drawings. 
State  your  opinion — for  or  against — the  necessity  of  providing 

for  depreciation  in  a  manufacturing  business. 


32  MICHIGAN  C.  P.  A.  MANUAL 

7.  Define   the    following   terms :      Prime    Cost,    Indirect    Charges 
(On-Cost),  Shop  Cost,  Cost  of  Production,  Commercial  Ex- 
penses, Stores,  Stock,  Storeroom,  Warehouse,  Freight-in  and 
Freight-out. 

8.  The  trial  balance  and   schedules  of   debtors   and   creditors   in 
the  books  of  a  manufacturing  concern  disclose : 

(a)  Debts  owing  to  and  by  the  same  firms  among  the  debtors 
and  creditors. 

(b)  Money  owing  by  the  concern  to  a  debtor  for  calls  unpaid 
and  in  arrears. 

(c)  Money  owing  by  the  concern  to  the  acceptor  of  a  note  re- 
ceivable, discounted  by  the  concern's  bank. 

(d)  Money  owing  to  the  concern  by  the  drawer  of  a  note  pay- 
able accepted  by  the  concern. 

9.  What  considerations  guide  you  in  deciding  in  each  case  whether 
these  sums  should  respectively  be  set-off  and  excluded  from  the 
Balance  Sheet  or  not,  (assuming  for  the  purpose  of  this  question 
that  the  sums  are  all  equal  in  amount)  and  what  is  your  decision 
in  each  case? 

10.  Explain  what  is  meant  by  Suspense,  Reserve,  Prepaid  and  Ac- 
crued  accounts  and  give  examples  of  each,  showing  proper  clas- 
sification on  the  debit  and  credit  sides  of  a  Balance  Sheet. 

11.  Differentiate  between  Consignments,  Adventures  and  Joint  Ac- 
counts.   Howr  should  Consignments  Received,  to  be  realized  for 
and  on  behalf  of  another,  be  best  treated  ?    How  should  the  man- 
aging partner  of  a  joint  adventure  treat  the  same  in  his  books? 
Illustrate. 

THEORY  OF  ACCOUNTS 


July  23,  1909,  from  8:00  A.  M.  to  12:00  M. 


I.  Describe  in  detail  your  understanding  of  and  the  principles 
underlying  the  following  systems  of  Wages,  and  their  influence 
on  the  labor  efficiency  in  a  large  manufacturing'  plant : 

(a)  Day  Rates.  (d)   Premium  Plan. 

(b)  Piece  Rates.  (e)   Bonus  Plan. 

(c)  Differential  Piece  Rates.  (f)   Efficiency  Plan. 


MICHIGAN  C.  P.  A.  MANUAL  33 

2.  Complete  the  following  Chart  of  a  Bank's  Officers  and  Employ- 
ees bv  setting  forth  briefly  the  duties  of  the  various  clerks  and 
the  different  books  and  records  kept  by  each,  showing  their  rela- 
tionship to  each  other,  etc. :    President,  Vice-President,  Cashier, 
Auditor,   Receiving  Teller,   Paying  Teller,   Note'  Teller,   Mail 
Teller,  Exchange  Teller,  Loan  Clerk,  Discount  Clerk,  Corre- 
spondence Clerk,   Stock  and  Bond  Clerk,  and  General  Book- 
keepers.    Give  any  further  information  with  which  you  may 
be  familiar  concerning  banking  routine. 

3.  In  most  large  banks  the  following  books  are  kept:     Private 
Ledger,  General  Ledger,  Loans  Ledger,  Deposit  Ledger,  Invest- 
ments   Ledger,    Agency    Ledger,    Corporation    Ledger,    Bills 
Discounted  Book,  Short  Bills  Book,  Securities  Record,  Country 
Drafts  Record,  and  Standing  Order  Book.     Show  the  forms  of 
rulings  for  these  books  and  describe  briefly  the  various'  accounts 
that  enter  into  them. 

4.  (a)    Describe  how  the  officers  or  "insiders"  of  a  corporation 

can  "milk"  the  corporation  to  their  own  personal  benefit. 

(b)  What  are  the  usual  methods  employed  in  such  cases  for 
the  purpose  of  giving  the  stockholders  and  the  public  a 
wrong  impression  of  a  corporation's  condition. 

(c)  Refer  to  any  such  cases  in  the  state  courts  or  in  your  own 
.  professional  practice  where  such  methods  have  been  ex- 
posed, describing  briefly. 

5.  What  books  and  records  are  essential  to  the  use  of  the  double- 
entry  system  in : 

(a)  Manufacturing  business.  (c)   Insurance  business. 

(b)  Merchandising  business.  (d)   Commission   business. 
Give  list  and  description. 

6.  If  a  Bond  reads  at  4%,  but  the  amount  which  will  be  received 
is  1.05  of  the  nominal  par,  what  is  the  actual  percentage  of  cash 
income  ? 

7.  (a)   How  would  you  adjust  a  fire  loss  where  an  inventory  and 

full  record  of  the  business  had  not  been  kept? 

(b)  Describe    the    practical    application    of    the    Co-Insurance 
Clause. 

(c)  The  Average  Clause. 

(d)  The  Three-Fourths  Value  Clause. 

(e)  The  Three-Fourths  Loss  Clause. 

(f)  The  Use  and  Occupancy  Form. 


34  MICHIGAN  C.  P.  A.  MANUAL 

8.  (a)   If  the  value  of  the  property  insured  is  $10,000.00  and  the 

actual  insurance  at  the  time  of  the  fire  is  80%,  what  would 
be  the  settlement  if  the  loss  was  50%  of  the  total  value? 

(b)  If  the  property   value   was  $10,000.00  with   an  80%   co- 
insurance clause  and  the  actual  insurance  in  force  at  the 
time  of  the  fire  was  $6,000.00,  what  would  be  the  owner's 
deficiency  ? 

(c)  How  much  if  the  loss  was  only  40%  of  the  total? 

9.  You  are  engaged  to  install  a  complete  factory  cost  and  account- 
ing system  in  a  large  manufacturing  plant.    Describe  the  various 
steps  in  the  handling  of  such  a  proposition  and  show  by  charts, 
the  accounts  (properly  grouped,  etc.)  of  the  departments,  (Pro- 

•  ductive  and  Non-Productive)  logically  arranged,  and  give  a  list 
of  the  various  forms,  etc.,  that  would  be  required  to  record  the 
factory  operations  to  intelligently  handle  them  from  an  account- 
ing viewpoint  as  an  integral  part  of  the  accounting  system. 

10.    What  system  would  you  recommend  to  a  factory  for  the  proper 
checking  of  all  labor  employed : 

(a)  To  obtain  a  complete  record  of  each  employee  from  date  of 
application  for  employment  to  date  of  discharge? 

(b)  To  prove  that  all  labor  paid  for  was  actually  accounted 
for? 

(c)  That  no  mistakes  had  been  made  in  figuring  the  time  or  in 
the.  paying  off? 

(d)  That  the  payrolls  had  not  been  padded  in  any  manner? 
Mention  the   forms,  mechanical  appliances,   etc..   required   for 
such  a  system  and  the  independent  internal  checks  necessary  to 
prevent  collusion  between  clerks  and  employees. 


THEORY  OF  ACCOUNTS 


Friday,  June  24,  1910,  from  I  130  P.  M.  to  5  130  P.  M. 


1.  Explain  the  difference  between: 

(a)   Receipts  and  Disbursements,    (b)   Revenues  and  Expenses. 

2.  Define  Capital   Receipts,   Capital   Expenditures.   Fixed  Assets, 
Floating    Assets,    Revenue    Receipts,    Revenue    Expenditures, 
Gross  Profits,  Net  Profits,  Net  Income. 


MICHIGAN  C.  P.  A.  MANUAL  35 

3.  (a)   In  the  books   of   a   contracting  concern,   what   treatment 

should  be  accorded  to  amounts  received  from  time  to  time 
on  estimates? 

(b)   In  the  valuation  of  assets,  what  basis  is  implied  by  the 
term  >(a  going  concern?" 

4.  (a)   What  is  Good  Will  and  on  what  should  it  be  based  to  arrive 

at  its  money  value  ? 

(b)  Is  it  rightfully  subject  to  a  depreciation  charge? 

(c)  Is  it  permissible  under  Michigan  laws  for  a  company  to 
capitalize  Good  Will?    Explain  fully. 

5.  An  issue  of  Mortgage  Bonds  of  the  par  value  of  $100,000.00  and 
running  for  five  years  has  been  sold  at  90,  the  money  to  be 
used  in  the  erection  of  new  buildings.     How  should  the  trans- 
action be  recorded  and  why? 

6.  A  municipality  borrowed  $150,000.00  for  5  years  at  4%,  in- 
terest payable  annually.    To  meet  the  debt  when  it  became  due 
a  Sinking  Fund  was  created  by  depositing  at  5%   compound 
interest  an  equal  sum  at  the  expiration  of  each  of  the  five  years. 
What  was  the  annual  amount  deposited? 

7.  (a)   In  a  general  way,  what  is  the  difference  between  a  Financial 

Statement  and  a  Balance  Sheet  ? 

(b)  In  a  general  way  what  distinguishes  Manufacturing  Ex- 
penses from  Commercial  Expenses  ? 

(c)  Give  a  form  of  Bank  Reconciliation  and  explain  the  purpose 
of  same. 

8.  (a)   A  Manufacturer  having  turned  his  business  into  a  joint 

stock  company  and  as  yet  owning  all  the  stock  himself — 
only  a  few  shares  standing  nominally  on  the  company's 
books  as  belonging  to  friends — finds  after  a  time  that  the 
business  needs  more  capital.  Thereupon  he  agrees  to  sell 
a  portion  of  the  stock  to  outside  parties  for  cash,  stipulating 
that  the  money  so  obtained  shall  all  be  put  into  the  busi- 
ness— that  is  to  say,  shall  be  at  once  expended  in  purchasing 
new  machinery  and  in  repairs  and  improvements,  which  is 
done  accordingly.  How  is  the  transaction  properly  to  be 
brought  into  the  company's  accounts? 

(b)   How  should  premiums  received  on  the  issue  of  shares  of 
Capital  Stock  be  treated  in  the  accounts  of  a  corporation? 


36  MICHIGAN  C.  P.  A.  MANUAL 

9.    (a)   Name  four  advantages  of  Controlling  Accounts. 

(b)  What  is  the  best  way  of  handling  on  the  books  the  con- 
tingent liability  on  Notes  Receivable  that  have  been  dis- 
counted at  the  Bank? 

10.  (a)  Name  ten  matters  of  special  importance  in  devising  any 
system  of  internal  check  in  the  handling  of  office  records, 
(b)  In  case  you  were  consulted  by  prospective  partners  re- 
garding the  terms  of  a  partnership  agreement,  what  points 
would  you  recommend  for  incorporating  in  such  agree- 
ment ? 


THEORY  OF  ACCOUNTS 


Friday,  June  28,  1912,  from  8:30  A.  M.  to  12  130  P.  M. 


1.  (a)   Name  three  objects  of  bookkeeping. 

(b)  Into  what  two  general  and  what  three  special  classes  are 
accounts  divided  in  double  entry  bookkeeping? 

(c)  Give  two  examples  of  Fixed  Assets  in  one  business  which 
become  Floating  Assets  in  another  business. 

(d)  What  are  revenue  receipts? 

(e)  What  are  revenue  expenditures? 

(f)  Name  and  define  five  commonly  used  sub-divisions  of  rev- 
enue expenditure  accounts. 

2.  (a)   Should  cash  discounts  earned  be  credited  against  the  cost 

of  goods  purchased,  or  credited  to  profits?    Explain  why. 

(b)  What  is  meant  by  ''turnover?" 

(c)  How  can  the  amount  of  the  "turnover"  be  shown  in  the 
Trading  Account? 

3.  (a)   What  is  a  Balance  Sheet? 

(b)  In  what  order  should  the  various  accounts  be  listed  on  the 
Balance  Sheet? 

(c)  Give  examples  of  the  proper  entries  when  the  following 
transactions  occur  in  respect  to  Notes  Receivable : 

1.  When  a  note  is  received. 

2.  When  a  note  is  discounted. 

3.  When  a  note  is  paid. 


MICHIGAN  C.  P.  A.  MANUAL 


37 


4.  When  a  note  is  partly  paid  and  a  new  note  given 
for  the  balance. 

5.  When  a  note  is  collected  by  the  bank. 

6.  When  a  note  is  protested. 

4.  (a)   What  is  a  reserve? 

(b)  Give  three  examples  showing  purposes  for  which  reserves 
are  created. 

(c)  What  is  a  Sinking  Fund? 

(d)  What  is  its  purpose? 

5.  (a)   Prepare  a  chart  of  accounts  of  a  manufacturing  business 

making  and  selling  three  distinct  classes  of  goods, 
(b)   Using  this  chart,  explain  how  profits  are  traced  from  group 
to  group  until  they  reach  the  Surplus  Account. 

6.  (a)   What  are  the  elements  of  Interest? 

(b)  What  is  the  rate  of  discount  corresponding  to  2%  interest? 

(c)  In  a  4%  bond  to  net  2l/2%  what  is  the  difference  of  rates? 

7.  (a)   In  devising  a  system  of  accounting  for  a  manufacturing 

business,  what  are  the  main  subjects  for  consideration? 

(b)  In  what  order  should  they  have  attention? 

(c)  Describe  the  principal  books  that  should  be  used  and  their 
relation  and  connection. 

8.  Define  and  differentiate  the  following  kinds  of  accounts : 

(a)  Real  and  Nominal. 

(b)  Personal  and  Impersonal. 

(c)  Current  and  Summary. 

(d)  Controlling  and  Specific. 

9.  Describe  the  various  methods  of  distributing  "Factory  Expense'' 
or  "On  Cost"  so  as  to  properly  apportion  same  to  the  cost  of 
the  articles  manufactured  and  sold  during  a  period,  stating  the 
advantages  of  each  method  in  various  kinds  of  businesses. 

10.  Lay  up  a  complete  administrative  chart  for  a  large  manufactur- 
ing concern  to  show  the  different  departments  and  departmental 
heads  from  the  Board  of  Directors  down,  so  as  to  place  re- 
sponsibility, indicate  control  and  to  show  to  whom  reports 
should  be  made. 


MICHIGAN  C.  P.  A.  MANUAL 


THEORY  OF  ACCOUNTS 


Friday,  June  13,  1913,  from  8:00  A.  M.  to  12:00  M. 


1.  Explain  the  ways  in  which  the  books  and  accounts  kept  by  a 
firm  conducting  any  line  of  business  would  differ  from  those  of 
an  individual  conducting  the  same  business. 

2.  (a)   Explain  the  books  and  accounts  needed  by  a  corporation 

that  are  not  needed  by  a  firm. 

(b)  What  advantages  are  there  in  incorporating?  What  dis- 
advantages ? 

3.  (a)   Name  the  various  kinds  of   stock  and  explain  what  the 

different  kinds  represent. 

(b)  How  would  the  following  affect  the  individual  holders  or 
subscribers :  secret  reserves,  excessive  dividends,  bank- 
ruptcy, and  voluntary  dissolution  of  the  corporation? 

4.  (a)   Explain  the  various  ways  of  determining  the  cost  of  manu- 

factured articles. 

(b)  What  is  the  method  of  operating  controlling  accounts,  and 
of  what  benefit  are  they  ? 

(c)  In  case  of  branch  stores  or  branch  factories,  should  goods 
delivered  from  the  main  store  or  factory  be  charged  at  cost, 
or  should  a  profit  be  added  in  making  the  charge? 

5.  (a)   Name  the  arguments  for  double  entry  bookkeeping  as  op- 

posed to  single  entry  bookkeeping. 

(b)  What  facts  can  be  determined  from  books  kept  by  double 
entry  which  cannot  be  determined  from  books  kept  by 
single  entry? 

6.  (a)   Explain  the  method  of  keeping  books  so  as  to  provide  a 

perpetual  inventory.     Take  any  kind  of  business   for  an 
illustration. 

(b)  Present  a  hypothetical  trial  balance. 

(c)  What  do  you  understand  by  overhead  charges? 

7.  A  public  institution  is  operating  on  a  budget  basis.     The  secre- 
tary of  the  institution  has  charge  of  the  accounts  pertaining  to 
the  budget.    A  purchasing  agent  is  employed  who  is  responsible 


MICHIGAN  C.  P.  A.  MANUAL 


39 


to  the  secretary.  All  requisitions  for  goods  come  to  him  from 
the  heads  of  the  departments  for  which  provision  has  been  made 
in  the  budget.  A  stock  room  is  operated  in  charge  of  a  stock- 
keeper.  Suggest  the  method  of  procedure  so  far  as  records  are 
concerned  from  the  time  the  budget  for  the  year  is  made  up 
until  it  is  closed,  showing  what  records  should  be  kept  by  the 
secretary,  what  by  the  purchasing  agent,  and  what  by  the  stock- 
keeper. 

8.  (a)   Explain  the  various  kinds  of  discounts  found  in  the  busi- 

ness world  and  the  methods  by  which  they  should  be  dis- 
tinguished in  books  of  account. 

(b)  Explain  a  method  of  allocating  expenses  in  a  department 
store. 

(c)  Describe  briefly  the  Imprest  Cash  system. 

9.  (a)   What  different  methods  should  be  employed  in  books  of 

account  for  keeping  track  of  notes  endorsed  for  accommo- 
dation and  notes  endorsed  in  the  regular  order  of  business? 
(b)   How  would  you  indicate  in  books  of  account  the  contingent 
liability  arising  in  each  case? 

10.  (a)  Name  and  explain  the  various  kinds  of  bonds  found  in 
business,  showing  the  method  by  which  entries  would  be 
made  for  receipts  from  the  same  for  bonds  sold  below  or 
above  par. 

(b)  How  should  expenditures  for  repairs  or  replacements  be 
treated  in  so  far  as  they  relate  to  the  question  of  depre- 
ciation ? 

(c)  Distinguish     between     receipts     and     disbursements     and 
revenues  and  expenditures. 


THEORY  OF  ACCOUNTS 


Saturday,  December  27,  1913,  from  8:00  A.  M.  to  12:00  M. 


I.    (a)   Explain  the  inaccuracies  from  an  accounting  standpoint  of 

the  ordinary  Interest  and  Discount  account, 
(b)   Explain  by  entries  the  proper  accounting  for  each  case  in 
which  interest  and  discount  is  involved  in  handling  both 
Bills  Receivable  and  Bills  Payable. 


4° 


MICHIGAN  C.  P.  A.  MANUAL 


2.  Explain  all  the  possible  accounting  problems  which  occur  in 
connection  with  such  accounts  as  Good  Will,  Franchise  or  Pat- 
ents. 

4.  Explain  the  various  methods  by  which  the  different  kinds  of 
overhead  charges  are  adjusted  in  a  manufacturing  concern. 

5.  Explain  the  different  ways  in  which  the  discount  on  bonds  sold 
below  par  may  be  written  off  by  the  issuing  concern.    Which  is 
the  best? 

6.  Prepare  a  Balance  Sheet  which  will  be  a  model  as  to  mechanical 
principles  involved. 

7.  A  city  has  just  taken  over  an  electric  light  plant.    You  are  asked 
to  prepare  a  statement  as  to  the  accounting  errors  against  which 
the  public  commission  which  is  to  operate  the  plant  should  guard 
itself.    Write  your  answer. 

8.  (a)   Outline  a  method  by  which  the  disbursing  officer  in  a  large 

concern  may  be  sure  that  bills  which  he  pays  are  O.  K. 
(b)   How  would  you  determine  the  loss  in  case  of  a  fire  if  the 
books  had  been  saved  but  were  not  kept  so  as  to  show  a 
perpetual  inventory? 

9.  Prepare  a  Trading  Account  which  will  show  all  the  various 
factors. 

10.    Outline  a  Cost  System  for  a  definitely  named  institution. 

THEORY  OF  ACCOUNTS 


Saturday,  June  27,  1914,  from  1 130  P.  M.  to  5  130  P.  M. 


1.  Explain  duties  of  Executor  or  Administrator.     Explain  form 
of  his  reports  and  indicate  points  of  care  to  be  observed  in  keep- 
ing his  accounts.     Name  the  other  reports  used  in  closing  an 
estate  and  object  of  each. 

2.  In  calculating  the  indirect  expense  for  a  Grey  Iron  Casting 
Foundry,  which  is  correct:    the  per  pound  basis,  the  rate  per 
hour  basis,  or  the  percentage  basis?    Give  reasons  and  explain 
fully. 

3.  What  do  you  understand  by  the  following  terms  and  give  illus- 
trations of  each :     Deferred  Debits  and  Credits,  Fixed  Assets, 
Quick  Assets,    Fixed    Liabilities,    Current    Liabilities,    Fixed 
Charges,  Contingent  Liabilities,  Real  Accounts,   Nominal  Ac- 
counts, Watered  Stock? 


MICHIGAN  C.  P.  A.  MANUAL  41 

4.  Set  up  a  Deficiency  Account,  explaining  the  points  involved  ? 

5.  Explain  fully  the  fundamental  points  to  be  observed  in  a  com- 
plete system  of  municipal  accounts,  where  some  public  service 
department  is  owned  by  the  municipality? 

6.  Describe  in  detail  the  principles  underlying  the  following  sys- 
tems of  wages,  and  their  effect  on  the  efficiency  of  labor  in  a 
large  plant :  day  rate,  piece  rate,  differential  piece  rate,  premium 
plan,  bonus  plan,  efficiency  system. 

7.  List  books  and  give  purpose  of  each,  used  by  a  corporation  but 
not  used  by  a  partnership.    Name  accounts  and  use  of  each  that 
are 'peculiar  to  corporation  accounting.     Make  a  statement  of 
facts  for  organizing  a  corporation  with  preferred  and  common 
stock  and  an  issue  of  bonds;  bonds  to  be  sold  at  par,  preferred 
stock  at  125  with  an  equal  amount  of  common  stock  given  as  a 
bonus.    Explain  the  process  of  organization  and  make  the  open- 
ing entries. 

8.  (a)  A  has  $5,000.00  invested  in  a  business.    He  sells  B  a  half 

interest  for  $3,000.00  and  keeps  the  money.  Make  the  entry, 
(b)   A  has  $5,000.000  invested  in  a  business.    He  sells  B  a  half 
interest  for  $3,000.00  and  places  the  money  in  the  business. 
Make  the  entry. 

9.  What  do  you  understand  by  the  following  terms :     Capital  Re- 
ceipts, Capital  Expenditures,  Revenue  Receipts,  Revenue  Ex- 
penditures,  Sinking  Fund,   Reserve   Fund,   Prepaid  Accounts, 
Accrued  Accounts,  Suspense,  Controlling  Accounts. 

10.  List  the  various  kinds  of  plant  assets  and  indicate  the  various 
percents  of  allowances  for  depreciation,  making  such  explana- 
tions as  are  necessary. 


THEORY  OF  ACCOUNTS 


Thursday,  December  24,  1914,  from  8:00  A.  M.  to  12:00  M. 


1.  Write  a  five  hundred  word  outline  of  the  regional  bank  legis- 
lation recently  enacted  and  indicate  ways  in  which  it  will  affect 
business. 

2.  Define:  Account  Current,  Account  Stated,  Amortization,  Rev- 
enue, Working  Capital,  Betterment,  Accrual,  Hidden  Reserve, 
Internal  Check,  Administration  Expense. 


42  MICHIGAN  C.  P.  A.  MANUAL 

3.  Four  corporations  which  have  been  doing  business  with  each 
other   consolidate.      In   each   set   of   books   accounts   are   open 
with  the  other  three.    How  will  these  be  treated  in  the  consoli- 
dated balance  sheet? 

4.  Explain  the  bookkeeping  principles  involved  for  both  consignor 
and  consignee  when  goods  are  consigned  by  a  manufacturing 
concern. 

5.  Set  up  a  balance  sheet  in  best  form. 

6.  Write  a  five  hundred  word  essay  on  cost  accounting,  explaining 
principles  on  which  it  is  based,  advantages  of  a  system,  and 
points  of  weakness  to  be  considered. 

7.  Outline  a  system  of  books  for  a  concern  conducting  a  wholesale 
drug  house,  a  retail  pharmacy,  arid  a  jobbing  business  in  chem- 
icals and  apparatus  used  by  colleges.     Some  setting  up  and  re- 
pairing of  apparatus  is  done  and  so  a  shop  is  conducted.     Four 
departments  required  and  but  one  set  of  books. 

8.  Explain  in  detail  the  theory  of  depreciation  in  its  various  phases. 

9.  (a)   What  differences  should  be  noticed  in  the  books  of  a  con- 

cern conducted  by  a  partnership  from  those  of  a  concern 
in  the  same  line  of  business  conducted  by  a  single  in- 
dividual ? 

(b)  What  information  can  you  get  from  a  set  of  books  kept  by 
double  entry  which  you  cannot  get  from  a  set  kept  by  single 
entry  ? 

10.     (a)   Make  entries  in  journal  form,  with  proper  explanations,  for 
,    all  the  various  ways  in  which  bonds  issued  by  a  corporation 
may  be  sold  by  it  and  afterwards  paid. 

(b)  Make  entries  in  journal  form,  with  proper  explanations,  for 
the  transactions  involved  when  notes  are  received,  discount- 
ed, paid  if  protested  after  discount,  paid  by  maker  when 
due,  paid  by  maker  at  25%  discount,  paid  by  maker  with 
interest. 

THEORY  OF  ACCOUNTS 


Saturday,  June  19,  1915,  from  8:00  A.  M.  to  12:00  M. 


1.  Explain  the  proper  method  of  handling  Merchandise  account, 
and  outline  the  various  sub-divisions. 

2.  Explain  the  Voucher  System  in  detail. 


MICHIGAN  C.  P.  A.  MANUAL 


43 


3.  Set  up  a  statement  of  facts  involving  a  complete  history  of  a 
sinking  fund  created  for  a  particular  purpose,  and  make  the 
proper  entries  for  the  same. 

4.  (a)   Explain  the  method  of  maintaining  a  perpetual  inventory, 
(b)   Explain  Treasury  Stock  in  all  of  its  phases. 

5.  Define:    Funded    Indebtedness,    Allonge,    Deferred    Charges, 
I'.iirden,  Appreciation,   Capital   Expenditures,   Secret  Reserve, 
Income  Bonds,  Imprest  Cash,  Income  Account. 

(>.    A  bought  goods  of  B  as  follows: 

May  4,  3O  days  $800.00 

May  30,  2  months   500.00 

June  8  400.00 

June  20 300.00 

July  ist  A  gave  B  a  note  for  sixty  days  drawing  interest  at  six 
per  cent  and  dated  at  the  average  due  date.     Write  the  note. 

7.  (a)   Explain  differences  between  Trial  Balance,  Statement  of 

Affairs  and  Balance  Sheet. 

(b)   Explain  differences  between  Trading  Account,  Loss  and 
Gain  Account,  Manufacturing  Account. 

8.  You  have  been  asked  to  prepare  a  system  required  for  a  club 
house  where  rooms  and  board  are  furnished  at  a  fixed  rate  per 
week.     Submit  a  report  to  the  directors  outlining  just  what 
should  be  done,  and  what  books  and  accounts  would  be  needed. 

9.  (a)   Discuss  from  both  standpoints  the  proposition  that  capital 

may  be  properly  regarded  in  any  set  of  books  as  a  liability. 
(b)   How  would  you  arrange  books  so  that  only  the  proprietor, 
or  his  personal  representative,  would  be  able  to  determine 
the  true  financial  status  of  the  business? 

jo.  About  a  year  ago  the  Ford  Motor  Co.  agreed  to  make  a  refund 
to  each  purchaser  during  the  succeeding  year  if  a  stated  number 
of  machines  were  sold  during  the  year.  If  you  had  been  asked 
to  determine  a  method  by  which  the  necessary  records  should 
be  kept  in  order  that  the  least  inconvenience  should  be  experi- 
enced at  the  close  of  the  year  when  this  refund  was  made,  it 
being  apparent  that  the  requirement  would  be  met,  what  orders 
Avould  you  have  given  ?  Write  a  report  embodying  same. 


AUDITING 


MICHIGAN  C.  r.  .1.  MANUAL 

MICHIGAN  STATE  BOARD  OF  ACCOUNTANCY 

Examination  for  the  Degree  of 

CERTIFIED  PUBLIC  ACCOUNTANT 
July  27-28,  1906 


47 


AUDITING 

Saturday,  July  28,  1906,  from  I  :oo  P.  M.  to  5  :oo  P.  M. 


75  credits  necessary  to  pass,  out  of  a  possible  100  credits. 
Each  complete  answer  will  receive  10  credits.  Do  not  repeat 
questions  on  examination  papers  but  write  answers  only,  designating 
the  questions  by  number.  The  intelligence  indicated  by  answers 
will  be  considered  in  marking  the  applicants  as  well  as  the  technical 
accuracy  of  such  answers. 


1.  What  is  the  general  course  for  an  accountant  to  follow  when 
called  upon  to  audit  the  books  of  any  business? 

2.  How  far  should  an  auditor  inquire  into  the  work  of  his  pre- 
decessor? 

3.  What  are  the  most  important  things  an  auditor  has  to  certify 
in  a  balance  sheet  showing  loss  and  gain  and  the  financial  con- 
dition of  a  business? 

4.  What  books  or  records  of  a  partnership  or  corporation  should 
be  examined  by  an  auditor? 

5.  Mention  the  methods  of  manipulating  accounts  which  are  most 
commonly  resorted  to  for  the  purpose  of  concealing  fraud  and 
embezzlement. 

6.  How  would  you  classify  the  accounts  in  preparing  a  statement 
of  the  following: 

(a)  Gas  and  Electric  Light  Company? 

(b)  Electric  Railroad? 

(c)  A  Manufacturing  Business? 

7.  What  accounts   would   be   affected   by    depreciation   on   leased 
properties  ? 


48  MICHIGAN  C.  P.  A.  MANUAL 

8.  Should  depreciation  be  written  off  the  accounts  of  a  corporation 
whose  property  is  of  a  wasting  nature,  such  as  a  quarry  or  a 
mine  ?    Give  reasons. 

9.  When  books  show  large  additions  to  buildings  and  machinery 
consisting  of  portions  of  payrolls  and  material  used,  without 
items  of  detail,  what  means  should  be  taken  to  prove  or  disprove 
the  accuracy  of  the  charges? 

10.  State  briefly  the  work  done  by  you  in  connection  with  some 
audit  in  which  you  have  been  engaged. 

AUDITING 


Saturday,  December  22,  1906,  from  I  :oo  P.  M.  to  5  :oo  P.  M. 


1.  What  details  should  be  covered  in  an  audit  required  to  show 
earnings,  financial  condition,  and  fraud  or  defalcation  if  any, 
the  scope  of  the  audit  not  being  limited  except  as  to  period  to 
be  examined  of  the  following: 

(a)  Manufacturing  company. 

(b)  Jobbing  house. 

(c)  Water  Transportation  Co. 

2.  In  auditing  a  bank  how  would  you  verify : 

(a)  Items  in  transit? 

(b)  Certificates  of  deposit?    . 

(c)  Collateral  securities  to  loans? 

3.  A  Treasurer  of  a  municipality  acts  as  tax  collector  for  City, 
School,  County  and  State  Taxes  during  a  period  of  three  months 
in  each  year.     At  the  expiration  of  three  months  a  tax  roll  is 
made  by  the  Treasurer  of  all  delinquents  and  it  is  turned  over 
to  the  County  Treasurer  for  further  collections.    You  are  called 
to  audit  his  accounts  after  delinquents  have  been  turned  over 
to  the  County  Treasurer.     State  your  method  of  verifying  the 
accuracy  of  the  books. 

4.  What  classes  of  property,  if  any,  in  your  opinion,  are  exempt 
from  depreciation.    Give  reasons. 

5.  In  auditing  the  books  of  a  Building  and  Loan  Association  what 
would  be  your  procedure  to  enable  you  to  verify  the  correct- 
ness of  the  same? 

6.  How  would  you  verify  the  cash  balance  stated  in  a  balance 
sheet  ante-dating  by  several  months  the  time  of  your  audit? 


MICHIGAN  C.  P.  A.  MANUAL  49 

7.  A  manufacturing  company  ships  its  products  in  packages  cost- 
ing 7^c  each.    They  are  charged  to  customer  at  ice  each  but 
subject  to  credit  when  returned  in  good  order  at  same  price  as 
charged.    At  close  of  year,  package  account  shows  an  apparent 
gain  being  the  difference  between  cost  of  package  and  amount 
of  contingent  sales.     What  disposition  should  be  made  of  the 
Ledger  gain  at  close  of  year? 

8.  Should  Bank  pass  books  be  considered  as  final  proof  in  verify- 
ing balances  shown  in  books  you  are  auditing?     State  your 
opinion  and  give  reasons. 

9.  How  would  you  proceed  to  verify  Accounts  Receivable  also  to 
satisfy  yourself  that  all  Liabilities  are  included  in  the  Balance 

Sheet? 

10.  You  have  completed  an  investigation  of  books  which  were  im- 
properly kept.  Make  up  report  of  from  100  to  200  words  on 
the  result  of  your  investigation. 


AUDITING 


Saturday,  November  2,  1907,  from  i  :oo  P.  M.  to  5  :oo  P.  M. 

1.  What  is  an  auditor  ? 

What  qualifications  must  he  possess? 

2.  If  an  auditor  is  limited  in  time  that  would  not  allow  a  thorough 
examination,  how  would  he  proceed  to  prove  the  general  cor- 
rectness of  the  books?    Explain  fully. 

3.  What  are  some  of  the  methods  used  by  county  and  municipal 
treasurers  to  cover  an  embezzlement  of  money  received  in  pay- 
ment of  taxes? 

4.  What  other  records  are  necessary  to  examine,  if  any,  than 
those  kept  by  the  secretary  and  treasurer  of  a  Building  and 
Loan  Association  to  prove  the  financial  condition,  also  the  cor- 
rectness of  the  books  of  such  association? 

5.  State  the  benefit  of  a  periodical  audit  and  whether  the  audit 
differs  from  a  special  covering  the  same  period.    Explain  fully. 

6.  How  far  should  an  auditor  examine  into  the  records  of  a  cor- 
poration which  is  desirous  of  using  the  auditor's  certificate  so 
as  to  enable  it  to  float  a  loan  or  interest  additional  capital? 


5o  MICHIGAN  C.  P.  A.  MANUAL 

7.  How  would  an  auditor  protect  himself  from  duplicate  vouchers 
or  fraudulent  bank  books? 

8.  How  would  you  prove  the  correctness  of  an  audit  made  by  an- 
other accountant  at  a  previous  date  and  how  would  you  pro- 
tect yourself  in  a  report  of  your  audit? 

9.  Where  a  set  of  books  shows  a  loss  and  the  nature  of  the  busi- 
ness, etc.,  warrants  the  belief  that  there  was  a  profit,  for  the 
purpose   of   an   audit   what   special   accounts,    etc.,   would   you 
outline  for  examination  and  what  method  would  you  pursue? 

10.    State  briefly  the  work  done  by  you  in  connection  with  some 
audit  in  which  you  have  been  engaged. 


AUDITING 


Friday,  June  26,  1908,  8 130  A.  M.  to  12  130  P.  M. 


1.  What  is  an  auditor's  duty  with  regard  to  the  following  items 
appearing  upon  the  Balance  Sheet :     Imprest  Cash,  Notes  Re- 
ceivable,   Customers'    Accounts,    Sundry    Debtors,    Mortgages 
Payable,  Certificates  of  Deposit,  Patents,  Goodwill,  Preliminary 
(or  Organization)  Expenses,  Stocks  and  Bonds,  Purchase  Cred- 
itors' Accounts  and  Sundry  Creditors? 

2.  What  do  you  understand  by  the  term  "Secret  or  Hidden  Re- 
serves?"   Mention  four  (4)  bona-fide  uses  of  a  Secret  Reserve 
and  state  your  opinion  as  to  the  propriety  or  otherwise  of  the 
creation  of  such  " reserves,"  giving  reasons. 

3.  The  J.  B.  &  B.  Coal  Mining  Company  has  acquired  a  leasehold 
right  to  a  certain  area  of  coal,  and  also  owns  an  area  of  free- 
hold coal.    What  would  you  require  as  auditor,  to  satisfy  your- 
self that  revenue  was  bearing  its  proper  annual  charge  in  re- 
spect to  the  coal  mined  ? 

4.  Chart  the  following  accounts  of  a   Street  Railway  Company 
under  their  proper  classification  and  logical  order,  as  to  Assets, 
(Active,  Fixed  and  Passive),  Liabilities,  (Funded,  Floating,  Re- 
serves and  Capital),  Expenses,  (Transportation,  including  Oper- 
ation of   Power  Plant  and  Car  Service),   (General,  including 
Administrative,  Emergencies  and  Fixed  Charges),    (Mainten- 
ance, including  Repairs  and  Depreciation),  and  Revenue,   (a) 
from  operation,  and  (b)  from  other  sources: 


MICHIGAN  C.  P.  A.  MANUAL  51 

Organization  Expenses,  Preliminary  Engineering  and  Superin- 
tendence Right  of  Way,  Track  and  Roadway,  Notes  Payable, 
Cash  in  Office,  Profit  and  Loss,  Power  Plant  Wages,  Salaries 
of  General  Officers,  Damages,  Taxes,  Electric  Line,  Investment 
Real  Estate,  Debentures,  Vouchers  Payable,  Stocks  and  Bonds 
of  Other  Companies,  Hired  Power,  Wages  of  Conductors  and 
Motormen,  Car  Service  Supplies,  Insurance,  First  Mortgage 
Bonds,  Ninth  National  Bank,  Cleaning  and  Sanding  Track, 
Printing  and  Stationery,  Legal  Expenses,  Rent  of  Land  and 
Buildings,  Notes  Receivable,  Shop  Tools  and  Machinery,  Pas- 
senger Receipts,  Rolling  Equipment,  Dividends,  Material  and 
Supplies,  Freight  Receipts,  Interest  on  Deposits,  Track  Rentals, 
Common  Stock,  Sinking  Funds,  Goodwill,  Mail  Receipts,  Sale 
of  Power,  Dividends  on  Securities,  Salaries  of  Clerks,  Removal 
of  Snow  and  Ice,  Advertising  and  Attractions,  Storeroom  Ex- 
penses, Steam  Plant,  Items  in  Suspense,  Impairment  and  Sur- 
plus, Reserves,  Accounts  Receivable,  Second  Preferred  Stock, 
Second  Mortgage  Bonds,  Fuel  and  Water  for  Power,  Buildings 
and  Fixtures. 

5.  A  $100.00  Bond  is  issued  at  $115.00  and  is  payable  as  to  $35.00 
on  allotment,  and  as  to  the  remaining  $80.00  in  four  equal  in- 
stallments at  intervals  of  two  months,  the  first  installment  being 
due  two  months  after  the  allotment.    If  after  a  year  a  dividend 
of  $6.00  is  paid  on  each  bond,  what  is  the  average  rate  of  in- 
terest on  the  investment  for  the  whole  year? 

6.  The  cashier  of  a  firm  has  disappeared.     The  cash  book  is  left 
written  up  and  balanced  off,  the  custom  being  to  pay  any  cash 
balance  into  the  Bank  each  day.    What  course  would  you  take 
to  ascertain  whether  there  were  any  defalcations,  if  you  were 
called  upon  to  audit  ? 

7.  You  are  asked  by  a  client  to  treat  inventories  at  the  time  of 
closing  the  books.     Should  they  be  figured  at  cost  or  market 
price  or  otherwise?     Is  the  common,  old  fashioned  method  of 
adding  the  inventory  of  merchandise  on  hand,  to  the  credit  side 
of  the  merchandise  account  before  closing  the  books,  theoret- 
ically correct?    Explain  fully. 

8.  What  evidence  would  you  require  as  to  the  validity  of  expendi- 
ture in  respect  to  wages  paid  in  a  large  manufacturing  plant, 
and  as  to  the  value  of  the  inventories  of  stock  on  hand  credited 
to  Loss  and  Gain?    It  is  assumed  that  the  above  manufacturing 
concern  kept  a  complete  Cost  System,  which  was  an  integral  part 
of  the  general  books. 


52  MICHIGAN  C.  P.  A.  MANUAL 

9.  John  Adams,  a  capitalist,  contemplates  purchasing  the  stock  of 
the  American  Grain  Exporting  Company,  a  corporation  organ- 
ized with  a  capital  of  $200,000.00  divided  into  1,000  shares  Pre- 
ferred Stock  and  1,000  shares  Common  Stock,  par  value  $100.00 
each,  six  per  cent  (6%)  dividends  payable  upon  the  Preferred 
Stock  before  any  dividends  are  declared  upon  the  Common 
Stock. 

This  stock  has  been  offered  to  Mr.  Adams  at  $60.00  per  share 
for  the  Preferred  and  $40.00  per  share  for  the  Common,  You 
are  requested  to  audit  the  books  of  the  Company  and  give  your 
opinion  as  to  the  value  of  the  stock.  You  find  the  following 
accounts  to  be  correct,  covering  a  period  of  one  year: 

Cash $       900.00 

Accounts  Receivable : 

Good    $15,000.00 

Doubtful    4,000.00 

Bad   6,000.00    25,000.00 

Plant  and  Machinery  75,000.00 

Horses  and  Wagons  4,000.00 

Merchandise,  Invt 29,000.00 

Good-Will     50,000.00 

Furniture  and  Fixtures   2,000.00 

Expenses    3,000.00 

Wages   15,000.00 

Purchases     325,000.00 

Claims  and  Rebates 8,000.00 

Ordinary  Repairs   9,000.00 

Sales $260,400.00 

Mortgage  on  Plant 25,000.00 

Accounts  Payable  42,000.00 

Surplus 18,500.00 

Capital  Stock 200,000.00 


-.$545,900.00    $545,900.00 

Inventory  submitted  $129,000.00.  The  Company  started  busi- 
ness six  years  ago  and  build  the  plant  and  machinery  and  pur- 
chased the  property  pertaining  to  fixed  capital.  Write  the  re- 
port, commenting  upon  the.  advisability  of  the  purchase  and  sub- 
mit Profit  and  Loss  Statement  and  Balance  Sheet,  after  closing 
the  books. 

10.  The  market  value  of  the  investments  of  a  Trust  Company  has 
fallen  considerably,  while  the  Company  has  earned  enough  in- 
come to  pay  the  usual  dividend.  How  should  you  deal  with 
this  position  of  affairs  in  auditing  the  annual  accounts? 


MICHIGAN  C.  P.  A.  MANUAL  53 


AUDITING 


Friday,  July  23,  1909,  2  P.  M.  to  6 130  P.  M. 


1.  What  is  the  average  (equated  date)  of  the  following: 

(a)  $114.00  due  April  10;  $140.00  due  April  26;  $320.00  due 
May  22 ;  $976.00  due  June  6  ? 

(b)  June  3,  $375.00  on  30  days'  time;  June  28,  $420.00  on  60 
days'  time;  July  16,  $560.00  on  4  months'  time;  September 
4,  $228.00  on  90  days'  time  ? 

(c)  Dr.  May  16,  $437.00;  Cr.  May  23,  $400.00;  Dr.  May  31, 
$324.00;  Cr.  June  16,  $300.00? 

2.  (a)   If  instructed  to  carry  out  a  monthly  audit  by  the  auditing 

committee  of  a  club,  what  steps  would  you  take  to  ascertain 
whether  any  peculations  were  being  carried  on  in  connec- 
tion with  the  kitchen  and  the  cafe? 

(b)  What  system  would  you  recommend  to  prevent  dishonesty 
on  the  part  of  the  various  employees,  from  the  time  orders 
are  placed  for  buying  the  provisions  and  supplies,  until  the 
accounts  of  members  are  paid  to  the  cashier  and  banked? 

3.  A  man  invests  $2,000.00  in  3%  Stock  at  84,  and  $5,000.00  in 
4%  Stock  at  96.     After  three  years,  he  sells  the  former  at  72 
and  the  latter  at  101. 

(a)  What  rate  of   interest  has  he  received  during  the  three 
years  on  his  investment? 

(b)  How  is  the  value  of  his  capital  changed? 
Show  by  figures  how  you  worked  out  the  answers. 

4.  An  American  firm  has  an  extensive  trade  with  Spanish  and 
English  customers,  to  whom  goods  are  invoiced  in  Spanish  and 
English  currency,  and  payments  are  accepted  made  by  bills  in 
those  currencies.    The  firm's  principal  business  is,  however,  in 
the  United  States.    Explain  in  what  manner  you  would  arrange 
for  the  books  to  be  kept  and  the  titles  of  any  special  accounts 
that  it  might  be  necessary  to  keep. 

5.  Jones  and  Brown  are  partners,  sharing  profits  equally.     Their 
capital  as  it  appears  on  the  books  of  the  partnership  on  June 
2Oth,  1908,  the  date  on  which  they  dissolve  partnership,  is — 
Jones,  $2,000.00  and  Brown,  $500.00.    The  total  amount  owing 
by  the  firm  is  $5,000.00,  which  includes  $1,000.00  due  to  Jones 


54  MICHIGAN  C.  P.  A.  MANUAL 

on  a  loan,  and  $500.00  due  to  Brown  on  a  loan.  The  whole  of 
the  assets  of  the  firm  realize  $6,000.00.  Prepare  accounts  closing 
up  the  partnership  and  show  the  position  in  which  the  partners 
stand  with  each  other. 

6.  How  would  you  deal  in  a  Life  Insurance  Company's  accounts 
with  premiums  received,  bearing  in  mind  the  fact  that  premiums 
are  always  paid  in  advance  ?    Should  you  apportion  them  ?    Ex- 
plain fully  in  your  answer. 

7.  (a)   How  would  you  proceed  with  the  audit  of  the  accounts  of 

a  corporation  whose  capital  was  invested  in  the  entire  cap- 
ital stock  and  bonds  of  a  number  of  other  companies,  to 
arrive  at  a  correct  result  as  to  the  profits  of  the  corpora- 
tion? Answer  fully,  giving  your  reasons  for  your  action, 
etc. 
(b)  When  would  be  the  proper  time  for  declaring  dividends? 

8.  A  certain  issue  of  $100,000.00  4%  Bonds  is  dated  September 
i,  1908.  and  interest  begins  at  that  date,  but  interest  is  payable 
on  February  ist  and  August  ist,  and  the  principal  (with  four 
months'  interest)  is  payable  December  ist,  1912.     What  is  the 
value  of  these  bonds  on  a  3.60  basis  at  that  date  of  issue  ?    What 
is  their  value  on  the  same  basis  if  purchased  on  December  ist. 
1908? 

(Note  that  you  are  interpolating  into  a  five-month  period,  not 
a  six  month,  in  the  beginning.) 

9.  A  wool  dealer's  business  consists  of  the  following  transactions : 

(a)  Buying  and  selling  for  his  own  account. 

(b)  Receiving  on  consignment  and  selling  for  commission. 

(c)  Consigning  to  other  dealers  for  sale  for  his  own  account. 

All  wool  received,  whether  purchased  or  consigned,  is  charged 
to  Merchandise  account,  and  credited  to  the  vendors  or  con- 
signors and  all  wool  disposed  of,  whether  consigned  or  sold,  is 
credited  to  Merchandise  account  and  charged  to  the  purchasers 
or  consignees.  The  prices  in  the  pro  forma  invoices  of  con- 
signed goods  invariably  differ  from  prices  shown  in  the  account 
sales  rendered  to  consignors  or  received  from  consignees.  At 
the  end  of  the  year  he  prepares  a  statement  treating  all  wool  in 
his  possession  as  inventory  and  credits  Merchandise  account 
therewith,  all  debit  balances  on  account  of  goods  sold  or  con- 
signed by  him  as  Accounts  Receivable,  and  all  credit  balances 
on  account  of  goods  purchased  or  consigned  to  him  as  liabilities. 
The  accounts  are  clerically,  correct.  You  are  asked  to  audit  his 


MICHIGAN  C.  r.  .1.  M.IXUAL  55 

books  and  certify  to  the  accuracy  of  his  statement.  How  would 
you  proceed  to  do  this?  Write  a  report  thereon  not  exceeding 
two  hundred  words. 

10.  How  would  you  proceed  in  making  an  audit  of  an  estate,  in- 
cluding principal  personality  and  income  personality,  and  real 
estate  and  real  estate  income,  where  the  interests  of  the  dis- 
tributees include  legacies  to  lineals  and  collaterals,  annuities, 
widow's  dower,  life  estates  and  estates  in  remainder?  Give  full 
particulars,  with  an  illustration,  supplying  your  own  figures. 


AUDITING 


Saturday,  June  25,  1910,  from  8:30  A.  M.  to  12:30  P.  M. 


1.  (a)   What  are  the  prime  objects  of  an  audit? 

(b)  In  commencing  the  audit  of  the  accounts  of  a  corporation, 
what  would  be  your  first  step  and  what  instructions  might 
be  given  to  the  bookkeeper,  showing  the  work  that  should 
be  done  before  the  audit  commences  ? 

(c)  What  is  the  duty  of  an  auditor,  in  relation  to  merchandise 
inventories  appearing  in  a  Balance  Sheet? 

( (1  )  Define  that  class  of  audits  known  as  "investigations"  and 
state  the  purpose  for  which  an  "investigation"  is  usually 
made. 

2.  (a)  .Would  you  recommend  that  a  client  have  his  books  audited 

monthly,  yearly,  or  on  special  occasions  only?  Give  full 
reasons  for  your  recommendation  and  the  relative  merits 
of  each  plan. 

(b)  Write  such  a  letter  as  would  accompany  your  report,  in- 
cluding a  certificate  such  as  you  would  ordinarily  furnish 
to  attach  to  a  Balance  Sheet  after  you  had  made  an  audit 
of  the  books  of  a  company  and  were  in  a  position  to  certify 
to  the  correctness  of  the  Balance  Sheet  and  Loss  and  Gain 
Statement. 

3.  (a)   If  in  auditing  the  accounts  of  a  Power  Company  you  found 

included  in  with  other  revenues,  an  amount  covering1  a 
charge  to  contractors  for  estimated  loss  on  account  of  delay 
in  completing  new  buildings  or  installing  new  machinery, 
would  you  consider  it  a  proper  entry  and  what  would  be 
your  duty  under  the  circumstances? 


56  MICHIGAN  C.  P.  A.  MANUAL 

(b)  In  making  an  audit  of  a  company  you  find  that  they  have 
notes   receivable  bearing  interest,   some   paid   in   advance 
and  included  in  the  face  of  the  notes,  others  with  interest 
accruing.     Explain  your  handling  of  this  interest  in  your 
report. 

(c)  You  also  learn  that  a  customer's  note  has  been  discounted 
at  the  bank.    In  your  report  will  you  treat  of  this  note  or 
of  any  interest  in  relation  to  same? 

4.  During  your  audit  of  the  books  of  a  concern  you  learn  that  it 
has  an  authorized  issue  of  $100,000.00  of  Bonds ;  that  $40,000.00 
of  these  bonds  have  been  sold  at  par,  $10,000.00  have  been  sold 
at  a  premium  of  10%,  $30,000,00  are  up  as  collateral  to  a  loan 
on  the  company's  note  of  $25,000.00,  at  the  bank,  and  the  bal- 
ance $20,000.00  have  not  been  disposed  of.     Prepare  a  balance 
sheet    (supplying  the  other  accounts  and  figures  in  a   simple 
manner)    which   will   include   the   above  transactions   properly 
handled  and  explained. 

5.  (a)   State  briefly  the  method  of  procedure  in  auditing  the  ac- 

counts of  "Executor  and  Trustee"  on  behalf  of  a  "Life- 
tenant." 

6.  (a)   A  soap  company  has  adopted  the  policy  of  giving  away 

premiums  in  connection  with  its  sales,  by  means  of  coupons 
which  are  to  be  redeemed  in  quantities  provided  as  per  a 
printed  list.  How  should  these  premiums  be  treated  in  pre- 
paring a  Balance  Sheet,  Loss  and  Gain  Statement,  etc.  ? 
(b)  A  milk  company  sells  to  its  customers  strips  of  tickets 
which  are  good  in  payment  of  the  milk  delivered  to  them. 
These  tickets  are  paid  for  in  advance  b'y  the  customers. 
What  accounts  would  you  expect  to  find  on  the  books  and 
how  should  the  entries  be  handled  showing  the  transactions 
of  the  sales  of  tickets  and  the  deliveries  of  milk  ?. 

7.  (a)   In  presenting  a  complete  audit  report  to  a  manufacturing 

concern,  what,  in  your  opinion,  should  be  the  logical  ar- 
rangement of  the  schedules,  etc.,  submitted? 

(b)  In  auditing  the  books  of  a  manufacturing  concern,  you 
learn  that  the  Goods  in  Process  have  been  inventoried  at 
material  and  labor  value  only.    State  how  to  determine  the 
amount  of  manufacturing  expense  that  should  have  been 
added  to  properly  complete  the  inventory. 

(c)  Give  briefly,  instructions   for  properly  taking  a  complete 
inventory  of  a  manufacturing  concern. 


MICHIGAN  C.  P.  A.  MANUAL 


57 


X.    A  commission  consisting  of  three  members,  A,  1>,  and  C,  are 
sent  on  a  special  mission  and  on  their  return  an  expense  account 
is  turned  in  by  the  chairman,  A,  as  follows  : 
Expenses — 

3  R.  R.  Tickets,  @  $15.50 $46.50 

i  Cash  Fare 15.75 

Sleeping  Car    9.00 

Hotel,  etc 37-5Q 

To  B   for  incidentals    15.00 

To  C      "  12.00 

To  A     " ,..     9.50    $14525 

Refunds — 

i  R.  R.  ticket  returned  for  redemption 15.00 

Cash  returned  by  B 5.30 

"C 3-70 

"  to   balance 30.25    $54.75 


$200.00 
Cash  advanced $200.00 

\Yus   the   account   correct?      If   not,    what   amount   of   money 
should  A  have  returned?    Explain  fully. 

9.  A  manufacturing  concern  has  been  operating  for  a  period  of 
nine  months,  but  owing  to  incomplete  development  of  the  plant, 
the  production  during  that  period  was  greatly  below  the  ca- 
pacity and  the  cost  of  production  consequently  abnormal.  The 
directors  are  anxious  to  obtain  a  statement  not  only  showing 
the  result  of  operations  for  the  ten  months,  but  one  which 
would  be  fairly  indicative  of  what  the  results  would  have  been 
had  conditions  been  normal.  Assuming  that  the  actual  time  lost 
on  account  of  the  frequent  stoppages  amounted  in  the  aggregate 
to  four  months,  would  the  auditor  be  justified  in  furnishing  the 
latter  statement  as  well  as  the  former,  and,  if  so,  how  would 
you  proceed  to  show  the  desired  results  from  the  following 
items : 

Manufacturing  Materials $150,000.00 

Productive  Wages 45,450.00 

Miscellaneous  Non-Prod.  Labor  17,580.00 

Salaries    10,500.00 

Insurance   -',500.00 

Taxes  Accrued 1,150.00 

General  Expenses 1,875.00 

Interest  Accrued 3,6oo*)o 

Sales  205,752.00 

Finished  Goods  at  Cost  15,840.00 


58  MICHIGAN  C.  P.  A.  MANUAL 

10.  (a  )  The  cashier  of  a  firm  has  disappeared.  What  steps  should 
be  taken  to  investigate  his  accounts  with  the  view  of  ascer- 
taining if  there  has  been  a  defalcation? 

(b)  What  are  some  of  the  most  common  methods  of  defaulting? 

(c)  How    are    such    peculations    most    systematically    covered 
up  in  the  accounts  to  avoid  detection? 


AUDITING 


Saturday,  June  29,  1912,  from  I  130  P.  M.  to  5:30  P.  M. 


1.  You  are  elected  the  auditor  of  a  corporation  by  the  holders 
of  both  common  and  preferred  stock  and  it  is  your  duty  to 
safeguard  the  interest  of   both   classes   of   stockholders.      The 
preferred    stock   bears   /%    and    is   non-cumulative.      Mention 
what  precautions  you  would  adopt  to  safeguard  the  interests 
of  the  preferred  stockholders,  giving  detailed  reasons  therefor. 

2.  Describe  in  detail  the  method  that  should  be  used  to  verify  the 
securities   representing  the   investments   of   a   Company   under 
audit,  in  the  case  of : 

(a)  Real  Estate. 

(b)  Mortgages  on  Real  Estate. 

(c)  Certificates  of  Stock. 

(d)  Railway  Bonds. 

3.  (a)   In  making  an  audit,  would  you  consider  it  necessary  to 

check  in  detail  the  postings  of  subsidiary  ledgers  ?    Explain 
fully. 

(b)  What  is  the  responsibility  of  the  accountant  who  under- 
takes to  examine  a  going  business  for  the  purpose  of  issuing 
a  certificate  showing  the  net  "earnings  of  the  business  for 
the  preceding  five  years  to: 

1.  The  owners? 

2.  Those  investing  money  therein  on  the  basis  of  the  report? 

4.  In  an  audit  stipulating  for  the  examination  of  all  vouchers  of 
every  description,  what  would  be  proper  vouchers  for  the  fol- 
lowing:   Purchases,  Returned  Purchases,  Sales,  Returned  Sales, 
Cash  Receipts,  Cash  Payments,  Journal  entries? 

5.  (a)   In  presenting  a  Certified    Balance   Sheet,   what  items  are 

matters  of  fact,  and 

(b)  What  items  are  opinions,  and 

(c)  Taken  as  a  whole,  are  you  establishing  a  fact  or  an  opinion? 


MICHIGAN,  C.  I'.  .1.  M.IXUAL  59 

6.  In  making  an  audit  of  the  accounts  of  Leslie  &  Porte,  stock 
brokers,  how  would  you  verify: 

(a)  The  stocks  and  bonds  owned  or  held  as  collateral  for  cus- 
tomers' accounts?     (In  your  reply,  state  clearly  each  step  in 
the  process.) 

(1))   The  stocks  and  registered  bonds  in  process  of  transfer? 

(c)  In  preparing  their  Balance  Sheet,  how  would  you  deter- 
mine the  customers'  accounts  as  to  whether  they  should  be 
classed  as  good, -doubtful,  or  bad? 

(d)  Write  a  report  of  not  less  than  a  hundred  words  covering 
such  an  audit. 

7-  Describe  your  work  in  connection  with  some  recent  audit  upon 
which  you  have  been  engaged.  Relate  the  nature  of  the  busi- 
ness, answering  in  sufficient  detail  to  enable  the  examiners  to 
form  an  opinion  regarding  your  general  auditing  knowledge. 

8.  What  means  should  an  auditor  employ  to  determine  the  correct- 
ness of  reserves  for  depreciation,  bad  debts  and  discounts,  in- 
ventories of  raw  materials,  goods  in  process,  finished  product 
and  factory  pay  rolls?     To  what  extent  is  he  responsible  for 
the  accuracy  of  these  items  as  stated  in  his  report? 

9.  (a) What  would  you  require  from  a  firm  or  corporation  before 

entering  upon  an  audit  of  the  books? 

(b)  Name  the  different  kinds  of  audits, 

(c)  Describe  them. 

TO.  (a)  Define  your  understanding  of  the  principle  involved  in  de- 
termining what  are  and  what  are  not  expenditures  from 
capital. 

(b)  Give  a  brief  outline  of  the  duties  and  responsibilities  of  an 
auditor  and  what  special  qualifications  and  training  he 
shdYild  possess. 

AUDITING 


Friday,  June  13,  1913,  from  1 130  P.  M.  to  5:30  P.  AT. 


i.    (a)   Explain  the  value  of  an  outside  audit  for  a  business  having 

a  regularly  employed  auditor. 

(b)  In  making  an  investigation  of  a  business  for  the  purpose 
of  a  prospective  investor,  to  what  extent  should  the  report 
deal  in  average  earnings  as  distinguished  from  yearly  serial 


earnings  ? 


60  MICHIGAN  C.  P.  A.  MANUAL 

2.  (a)   Name  the  various  methods  of  manipulation  of  funds  which 

you  have  found  in  audits  made.  If  you  have  not  found 
any,  indicate  the  various  ways  of  manipulation  for  which 
you  would  look. 

(b)  How  would  you  verify  the  cash  balance  of  a  date  prior  to 
the  time  of  audit,  and  in  doing  so  what  use  would  you  make 
of  the  bank  book? 

3.  (a)   Explain  the   responsibility  which   the   auditor   has   to   his 

clients  as  regards  inventories  and  depreciation. 

(b)  How  would  you  treat  the  problem  of  organization  expenses 
in  auditing  the  books  of  a  concern  at  the  end  of  the  first 
year? 

4.  (a)   Outline  an  audit  which  you  have  made  during  the  past  year 

in  detail  without  naming  the  concern,  but  giving  the  char- 
acter of  the  business,  the  system  of  books  kept,  and  the 
method  pursued  in  making  the  audit. 

(b)  Write  a  two  hundred  word  report  of  an  investigation  which 
you  have  supposedly  made,  in  the  which  you  have  found 
a  poor  system  of  bookkeeping,  indicating  the  points  at 
which  it  is  bad,  and  suggesting  how  it  may  be  corrected. 

5.  In   auditing   a   manufacturing    concern,    what    various    points 
should  be  observed  as  to  earnings  ? 

6.  In  auditing  a  business,  you  find  that  the  market  value  of  securi- 
ties owned  by  it  has^depreciated  during  the  year  to  an  amount 
equal  to  the  earnings  of  the  business  proper.     In  making  your 
report,  how  would  you  treat  that  situation? 

7.  If  you  were  appointed  auditor  of  a  club,  such  as  the  Fellowcraf  t 
Club,  in  which  receipts  are  from  dues  and  cafe  services,  what 
method  would  you  prescribe  for  keeping  the  accounts  so  that 
you  might  be  able  to  make  a  check  upon  the  "Goods"  side  of  the 
institution  ? 

8.  An  ice  company  sells  coupon  books  which  are  paid  for  in  ad- 
vance.    What  accounts  would  be  required  for  the  purpose  of 
correctly  auditing  the  sales  and  deliveries  in  order  to  determine 
the  exact  earnings  at  any  given  time  ? 

9.  What  do  you  understand  is  the  purpose  of  the  Commission  on 
Economy  and  Efficiency  appointed  by  President  Taft? 

10.    Give  the  arguments  for  and  against  figuring  interest  on  a  manu- 
facturing investment  as  a  part  of  the  cost  of  production. 


M/CHICAX  C.  P.  J.  MANUAL  61 

AUDITING 
Saturday,  December  27,  1913,  from  i  130  P.  M.  to  5:30  P.  M. 

i .    Suggest  methods  by  which  auditors'  reports  should  safeguard 
prospective  investors. 

2.  You  have  just  been  appointed  a  State  Bank  Examiner  and  are 
obliged  to  make  your  first  examination  alone.    Explain  in  detail 
what  you  would  do. 

3.  In  making  an  audit,  you  find  that  a  corporation  has  purchased 
one  thousand  dollars  worth  of  its  own  stock  for  nine  hundred 
dollars.    The  bookkeeper  has  made  an  entry  debiting  Treasury 
Stock  for  $900.00.     If  the  entry  is  right,  explain  in  detail  the 
reason.     If  wrong,  make  the  correcting  entry  and  explain  in 
detail  why  it  was  wrong  and  why  yours  is  right. 

4.  In  an  equal  partnership  with  three  partners,  one  was  unable  to 
meet  his  share  of  the  investment  with  cash  and  gave  his  note 
drawing  interest  for  part.    When  he  paid  the  interest,  the  book- 
keeper credited  each  of  the  other  partners  for  one-half  of  the 
same.     He  objected  and  the  matter  is  referred  to  you  at  the 
time  of  audit.     He  claims  it  should  have  been  credited  to  In- 
terest and  Discount  account  and  thus  have  been  divided  between 
all  three.    Write  your  decision  and  reasons  therefor. 

5.  Write  a  five  hundred  word  outline  of  the  Income  Tax  Law  or 
the  recent  Currency  Bill. 

6.  What  methods  have  your  audits  revealed  by  which  manufac- 
turing concerns  attempted  to  inflate  profits?     If  you  have  not 
met  any,  explain  how  it  could  be  done. 

7.  You  are  employed  to  make  an  audit  by  a  stockholder  who  be- 
lieves the  management  of  the  corporation  is  piling  up  a  large 
secret  reserve  with   the  view  of   buying  up  the  stock  of  the 
minority   holders.     You   are  given   free  access   to  the   books. 
Explain  in  detail  what  investigations  you  would  make  to  deter- 
mine the  truth  or  falsity  of  this  belief. 

8.  You  find  that  a  group  of  accounts  receivable  has  been  assigned 
to  secure  a  loan.    Does  that  affect  the  value  of  any  other  cred- 
itor's claim  in  case  of  failure  before  the  loan  is  paid?     Should 
any  reference  to  the  fact  be  made  in  your  report?    How  would 
you  set  up  that  fact  in  the  Balance  Sheet  ? 


62  MICHIGAN  C.  P.  A.  MANUAL 

9.  Outline  an  audit  made  by  you  this  year,  omitting  name  of  con- 
cern but  indicating  its  character.  Write  a  report  for  the  same 
indicating  any  condition  in  the  office  organization  which  you 
noticed  which  'gave  opportunity  for  fraud,  with  suggested 
remedy. 

10.  A  manufacturing  concern  has  been  operating  for  a  period  of 
nine  months  but  owing  to' incomplete  development  of  the  plant, 
the  production  during  that  period  was  greatly  below  the  capacity 
and  the  cost  of  production  consequently  abnormal.  The  directors 
are  anxious  to  obtain  a  statement  not  only  showing  the  result 
of  operations  for  the  nine  months,  but  one  which  would  be 
fairly  indicative  of  what  the  results  would  have  been  had  con- 
ditions been  normal.  Assuming  that  the  actual  time  lost  on 
account  of  the  frequent  stoppages  amounted  in  the  aggregate 
to  four  months  would  the  auditor  be  justified  in  furnishing  the 
latter  statement  as  well  as  the  former,  and  if  so,  how  would 
you  proceed  to  show  the  desired  results  from  the  following 
items : 

Mfg.   Materials    $39,865.69  Taxes  and  Interest $  1,398-59 

Freight  5,489.22  General  Expenses  6,537.14 

Productive  wages  8,827.84  Sales   42,363.33 

Non-Prod,  labor   4,441.73  Finished  goods  at  cost   ....     7,346.45 

Salaries    6,877.29 


AUDITING 


Friday,  June  26,  1914,  from  8:00  A.  M.  to  12  :oo  M. 


1.  Write  an  outline  of  the  tax  laws  in  Michigan.    Indicate  the  dif- 
ferences in  the  reports  asked  for  by  the  state  and  the  nation  as 
they  relate  to  taxes. 

2.  In  making  an  audit  you  find  that  a  large  quantity  of  goods  were 
purchased  prior  to  the  last  statement  and  hence  included  in  the 
last  inventory  at  cost  price.    A  change  in  the  tariff  has  increased 
their  value.     The  portion  which  has  been  sold  since  the  change 
was  sold  at  prices  which  represented  an  increase  of  $10,000.00. 
In  the  inventory  just  taken  the  goods  still  on  hand  are  inven- 
toried at  present  cost  value  which  is  $10,000.00  more  than  the 
original  amount.    What  would  you  do  about  it,  if  anything? 


MICH  1C,.  l\  C.  P.  ./.  MANUAL  63 

3.  (  hitline  an  audit  made  this  year  giving  all  the  details  as  to  pro- 
cedure, indicating  the  character  of  the  business  but  not  giving 
the  name  of  the  concern. 

4.  The  proprietor  of  a  mercantile  store  asked  you  to  prepare  a  set 
of  blanks  to  be  used  by  them  for  checking  all  of  their  delivery 
wagons,  including  the   returned  goods  which   the  drivers  col- 
lected.    He' wants  to  be  able  to  tracs  every  package.     Outline 
such  a  set. 

5.  Name  the  different  kinds  of  persons  who  would  have  an  interest 
in  audit  reports  prepared  for  a  corporation,  indicate  what  the 
interest  is,  and  show  the  responsibility  of  the  auditor  to  each 
class. 

6.  A  concern  has  an  authorized  issue  of  bonds  to  the  amount  of 
$100,000.00.    $40,000.00  are  sold  at  par,  $10,000.00  are  sold  at 
ten  per  cent  premium,  $30,000.00  are  put  up  as  collateral  to  a 
$25,000.00  loan  at  the  bank,  $20,000.00  are  on  hand.     Prepare 
a  balance  sheet  showing  the  above  transactions,  supplying  the 
other  needed  accounts. 

7.  A  and  B  are  partners  sharing  losses  and  gains  equally ;  A  in- 
vested $3,000,  P>  invested  $4,000.     They  are  -ready  to  wind  up 
the  business.     The  firm  owes  $5,000,  of  which  $1,000  is  due 
A  and  $500  is  due  B.    They  have  $7,000  in  cash.     Prepare  the 
accounts  showing  the  closing. 

8.  Write  a  formal  report  for  an  audit  supposed  to  have  been  made 
for  a  house  in  which  you  found  a  bad  cost  system.    Indicate  the 
errors  and  how  they  should  be  corrected. 

9.  A  man  invests  $2,000  in  3%  stock  at  75,  and  $4,750  in  4%  stock 
at  95.     He  keeps  them  both  five  years  and  sells  the  first  at  70 
and  the  second  at  98.    What  rate  of  interest  has  he  receive:!  on 
his  investment  and  how  has  his  capital  account  changed?     Pre- 
sent the  work  for  same. 

10.  Name  conditions  under  which  expenditures  from  capital  may  be 
permitted.  1  low  would  you  verify  securities,  inventories,  re- 
serves for  bad  debts? 


64  MICHIGAN  C.  P.  A.  MANUAL 

AUDITING 


Thursday,  December  24,  1914,  from  i  :oo  P.  M.  to  5  :oo  P.  M. 


1.  A  concern  has  established  a  sinking  fund  for  the  retirement  of 
a  mortgage.    An  investment  has  been  made  in  bonds  the  present 
market  value  of  which  is  below  cost.    Would  you  inventory  them 
at  market  value  or  at  book  value?    Why? 

2.  A  Mutual  Insurance  Company  began  business  by  the  Directors 

signing  a  Guaranty  Agreement  of  $100,000.  They  did  not  put  up 
any  securities  but  only  lent  their  names  to  the  agreement.  The 
agreement  specified  that  they  should  be  paid  6  per  cent  interest 
for  the  use  of  their  names,  in  accordance  with  the  amounts 
subscribed.  Would  you  pass  a  voucher  for  this  interest  without 
.  comment  ?  Give  reasons  for  answer. 

3.  You  begin  an  audit  of  books  January  I4th  for  the  period  ending 
December   3ist  previous.     Explain   in   detail  how  you   would 
verify  the  cash  balance  of  that  date. 

4.  Explain  some  fraudulent  methods  you  have  discovered  in  an 
audit  and  indicate  changes  in  bookkeeping  you  would  advise  to 
prevent  repetition.     If  you  have  never  found  any,  name  those 
for  which  you  usually  look  and  the  lines  of  approach  you  take. 

5.  Outline  an  audit  made  this  year,  indicating  the  character  of  the 
business,  but  not  its  name.    Name  books  and  special  forms  used, 
explain  use  and  in  written  report  indicate  any  changes  needed 
to  secure  a  saving  in  time  spent  in  bookkeeping. 

6.  Explain  in  full  your  method  of  arriving  at  a  correct  allowance 
for  bad  debts. 

7.  How  would  you  determine  whether  expenditures  in  a  manufac- 
turing concern  were  in  the  nature  of  maintenance  and  repairs 
or  constituted  an  actual  betterment?     By  illustrations  indicate 
how  they  would  be  treated  in  the  Balance  Sheet  and  in  the  Loss 
and  Gain  Statement  under  each  division. 

8.  How  can  you  determine  whether  all  liabilities  have  been  entered 
in  the  books  ? 

9.  A  corporation  has  a  controlling  account  in  the  general  ledger  for 
accounts  receivable.     The  balance  of  the  controlling  account  is 
$80,000.     The  debit  balances  of  the  individual  accounts  total 


MICHIGAN  C.  P.  A.  MANUAL  65 

$100,000  and  the  credit  balances  total  $20,000.  Is  a  statement 
correct  which  uses  the  controlling  account  balance  as  an  asset? 
If  not,  what  would  you  do?  Give  reasons. 

10.  In  a  large  country  store  containing  several  departments,  produce 
is  purchased  by  the  grocery  department  and  paid  for  with  orders 
on  the  other  departments.  How  would  they  be  treated  in  deter- 
mining the  profit  and  loss  of  the  several  departments  ? 


AUDITING 


Saturday,  June  19,  1915,  from  i  :oo  P.  M.  to  5:00  P.  M. 


1.  In  auditing  the  accounts  of  an  executor  what  points  should  be 
especially  examined? 

2.  You  are  to  prepare  a  consolidated  balance  sheet  for  a  holding 
company  and  two  subsidiary  companies  in  which  the  entire  stock 
of  one  company  has  been  acquired  below  par,  and  the  entire 
stock  of  the  other  company  at  a  premium.     How  would  you 
handle  such  premium  and  discount  in  your  balance  sheet?    Use 
figures  for  the  purpose  of  illustration. 

3.  (a)   How  would  you  prove  the  accuracy  of  a   Bills   Payable 

account  and  any  contingent  liability  on   Bills  Receivable 
discounted  ? 

(bj   How  would  you  determine  whether  all  of  the  debts  of  a 
concern  are  accounted  for  ? 

4.  Outline  an  audit  made  by  you  this  year,  indicating  the  character 
of  business,  system  of  books  used  and  method  of  procedure  in 
making  the  audit. 

5.  What  points  in  an  audit  are  of  special  interest  as  regards  a  cor- 
poration with  preferred  and  common  stock?    Does  it  make  any 
difference  whether  the  preferred  stock  is  cumulative  or  non- 
cumulative? 

6.  If  employed  by  the  officers  of  a  corporation  to  make  an  audit 
would  you  make  any  difference  in  your  plans  and  in  your  report 
if  you  knew  whether 'the  audit  was  to  be  presented  to  a  pro- 
spective customer  of  the  stock,  to  a  prospective  purchaser  of 
bonds,  to  the  bank  as  a  basis  for  the  purpose  of  securing  a  loan, 
or  to  the  stockholders  at  their  regular  annual  meeting.     If  so, 
state  the  differences. 


66  MICHIGAN  C.  P.  A,  MANUAL 

7.  The  State  Commission  is  about  to  determine  whether  the  Tele- 
phone Company  is  entitled  to  an  increased  rate  for  service  ren- 
dered.    You  have  been  employed  to  make  an  examination  of 
the  books  of  the  company  on  behalf  of  the  Commission.     What 
information  would  you  endeavor  to  secure  and  present  to  them? 

8.  A  manufacturing  company  issued  $200 ,000 worth  of  bonds.  One- 
half  of  them  were  sold  at  90 and  the  proceeds  placed  in  the  build- 
ing fund.    One-half  were  transferred  to  a  construction  company 
at  par,  the  construction  company  to  sell  them  at  whatever  price 
they   could  get,   but  presumably  they   would  yield  90.     They 
issued  $300,000  worth  of  preferred  stock,  and  $500,000  worth 
of  common  stock.    The  preferred  stock  sold  at  85,  and  one  share 
of  the  common  stock  was  given  with  every  share  of  preferred 
stock.     The  balance  of  the  stock  was  sold  at  50.     Make  the 
entries. 

9.  Is  depreciation  an  element  in  the  cost  of  manufacturing?  Give 
arguments  for  and  against  if  there  are  any  on  both  sides  of  the 
question.    Use  fictitious  entries  for  all  propositions  stated. 

10.  You  have  been  employed  by  a  large  advertiser  to  determine  the 
validity  of  the  circulation  claims  of  a  magazine,  and  have  been 
given  access  to  the  books  kept  by  the  owners  of  the  magazine. 
Explain  your  method  of  attack. 


COMMERCIAL  LAW 


MICHIGAN  C.  P.  A.  MANUAL  69 


MICHIGAN   STATE   BOARD    OF  ACCOUNTANCY 


EXAMINATION 
for  the  degree  of 

CERTIFIED  PUBLIC  ACCOUNTANT 
Detroit,  July  27-28,  1906 


COMMERCIAL  LAW 
Friday,  July  27,  1906,  from  8:00  A.  M.  to  12  :oo  M. 

75  credits  necessary  to  pass,  out  of  a  possible  100  credits. 

Each  complete  answer  will  receive  10  credits.  Do  not  repeat 
questions  on  examination  papers  but  write  answers  only,  designating 
the  questions  by  number.  The  intelligence  indicated  by  answers 
will  be  considered  in  marking  the  applicants,  as  well  as  the  technical 
accuracy  of  such  answers. 


1.  What  is  a  contract?     (a)  Can  a  contract  ever  foe  implied?  (b) 
Can  a  valid  verbal  contract  be  made  where  the  consideration,  if 
any,  is  merely  one  promise  for  another? 

2.  What  is  the  effect  of  an  endorsement,  "without  recourse,"  on 
a  promissory  note?     (a)  Is  the  endorser  of  a  promissory  note 
relieved  from  liability  where  the  holder  has  failed  to  notify  him 
of  the  time  it  became  due  and  the  default  of  payment  by  the 
maker  ? 

3.  What  is  a  corporation?     (a)  How  does  it  differ  from  a  partner- 
ship?    (b)  How  does  it  differ  from  a  stock  company? 

4.  What  is  the  meaning  of  the  word  "Stock"  in  reference  to  a  cor- 
poration?    (a)  What  does  it  represent?     (b)  How  is  it  trans- 
ferred?    (c)  What  rights  have  stockholders  in  and  to  the  cor- 
porate property  ? 

5.  What  is  a  receiver?    (a)  WThat  is  his  first  duty  on  taking  posses- 
sion of  property  or  trust  funds  committed  to  his  care? 


7o  MICHIGAN  C.  P.  A.  MANUAL 

6.  What  is  a  trustee  in  bankruptcy?     (a)  How  appointed  and  what 
are  his  duties  ? 

7.  How  much  must  a  debtor  owe  to  enable  his  creditors  to  force 
him  into  bankruptcy?     (a)  Is  it  necessary  that  he  should  have 
committed  an  act  of  bankruptcy?      (b)    State  briefly  what  is 
meant  by  acts  of  bankruptcy,     (c)  What  is  meant  by  a  compo- 
sition with  creditors,  and  the  effect  thereof? 

8.  What   are   some  of   the   principal    features   of   the   Statute   of 
Frauds  ? 

9.  What  is  your  understanding  of  the  statute  of  limitations? 

TO.  A  general  agent  of  a  corporation,  for  the  accommodation  of  a 
personal  friend  endorsed  his  friend's  note,  as  general  agent 
of  the  corporation,  before  it  was  endorsed  by  the  payee.  Is 
the  corporation  liable  for  the  payment  of  the  note?  (a)  Give 
reason. 

COMMERCIAL  LAW 


Saturday,  December  22,  1906,  from  8:00  A.  M.  to  12:00  M. 


1.  Give  the  requisites  of  a  valid  contract. 

2.  What  is  the  difference  between: 

A.  An  executory  and  an  executed  contract? 

B.  An  express  and  an  implied  contract? 

C.  A  void  and  a  voidable  contract? 

3.  Define  a  corporation. 

A.  How  are  corporations  created? 

B.  By  wrhat  are  their  powers  determined? 

C.  How  do  they  act  and  how  may  they  be  dissolved  ? 

D.  May  the  directors  convey  the  property  of  the  corpora- 
tion to  themselves? 

4.  Has  Michigan  a  negotiable  instruments  law  ? 

A.  What  is  the  purpose  of  such  a  law  ? 

5.  Give  the  essential  requisites  of  a  negotiable  instrument. 

A.  What  words  make  a  note  negotiable  ? 

6.  Under  what  circumstances  would  a  purchaser  of  a  negotiable 
instrument  acquire  greater  rights  under  it  than  the  vendor  had? 

7.  Who  is  an  accommodation  party? 


MICHIGAN  C.  P.  .1.  MANUAL  yi 

8.    Who  may  become  bankrupt? 

A.   What  is  the  difference  between  I'olitntarv'and  inrolun- 
tur\  bankrupts? 

15.   May  a  corporation  become  a  voluntary  bankrupt? 
C.  May  a  partnership  become  a  voluntary  bankrupt? 
<;.    What  courts  have  jurisdiction  over  bankruptcy  cases? 

10.    To  what  extent  can  the  acts  of  one  partner  bind  the  other 

partner? 

A.  How  may  partnerships  be  dissolved? 


COMMERCIAL  LAW 


Saturday,  November  2,  1907,  from  8:00  A.  M.  to  12:00  M. 


1.  What  are  the  requirements  of  a  negotiable  instrument? 

2.  A.  When  is  a  negotiable  instrument  payable  on  demand? 
I).  When  payable  to  order? 

C.  When  payable  to  bearer? 

3.  A.   1  low  are  negotiable  instruments  negotiated? 
B.  What  is  notice  of  dishonor? 

4.  What  are  assignments  for  benefit  of  creditors? 

A.  When  are  they  void? 

B.  What  is  the  effect  of  assignment? 

C.  What  should  an  inventory  of  assignment  contain? 

D.  Are  there  any  preferred  creditors  in  a  general  assign- 
ment ? 

E.  What  is  the  difference  between  an  assignment  for  bene- 
fit of  creditors  and  a  composition  of  creditors? 

5.  What  are  the  essentials  of  a  valid  contract? 

A.  Give  example  of  an  express  contract. 

B.  Give  example  of  an  implied  contract. 

C.  WThat  is  the  difference  between  a  void  and  a  voidable 
contract  and  illustrate? 

6.  A.  Has  Michigan  a  negotiable  instruments  law? 

I).  Wrhat  are  the  advantages  of  a  uniform  negotiable  instru- 
ments law  in  the  various  states? 


72  MICHIGAN  C.  P.  A.  MANUAL 

7.  What  are  the  limitations  of  actions : 

A.  On  an  account  stated? 

B.  On  a  promissory  note? 

C.  On  a  judgment  in  Justice  Court? 

D.  On  a  judgment  in  Circuit  Court? 

8.  A.  In  how  many  ways  may  a  person  become  a  bankrupt? 

B.  A  corporation  ? 

C.  Who  has  charge  of  the  property  of  a  bankrupt,  and  what 
are  their  duties? 

9.  What  is  a  corporation? 

A.  How  are  certificates  of  stock  of  a  corporation  trans- 
ferred? 

B.  What  action,  if  any,  is  necessary  to  transfer  real  estate 

of  a  corporation? 
10.    A.  Give  your  understanding  of  what  is  known  as  the  Statute 

of  Frauds. 
B.  How  may  merchandise  in  bulk  be  sold  and  transferred? 


COMMERCIAL  LAW 


Saturday,  June  27,  1908,  from  8:30  A.  M.  to  12:30  P.  M. 


1.  Define  a  contract. 

(b)  Classify  contracts  as  to  grade. 

(c)  What  is  a  condition  precedent  in  the  law  of  contracts? 

(d)  What  is  a  condition  subsequent? 

(e)  What  is  the  advantage  of  a  formal  contract? 

2.  Give  a  brief  account  of  the  law  merchant,  with  reference  as  to 
what  it  is  and  a  brief  history. 

3.  State  the  distinction  between  business  paper  and  accommodation 
paper. 

(b)   When  does  commercial  paper  obtain  legal  inception? 

4.  What  is  a  contract  of  indorsement? 

,'fo)   Name  and  give  examples  of  the  different  kinds  of  in- 
dorsement. 

5.  What  is  the  liability  of  each  party  to  a  certified  check?    Give 
reasons  for  your  answer. 

(b)   What  is  the  effect  of  an  alteration  of  a  negotiable  in- 
strument ? 


MICHIGAN  C.  P.  A.  MANUAL  73 

6.  How  is  a  corporation  created  in  Michigan  ? 

(b)  What  must  the  articles  of  association  set  forth? 

(c)  Who  must  sign  and  acknowledge  the  articles? 

(d)  What  portion  of  capital  stock  must  be  paid  in  cash  on 
the  day  of  executing  and  filing  the  articles? 

(e)  How  much  of  the  authorized  capital  stock  must  be 
paid  in  cash? 

7.  How  may  a  corporation  be  dissolved? 

(b)   What  will  effect  the  forfeiture  of  a  corporation  char- 
ter? 

8.  Define  agency. 

(b)  Name  the  classes  of  agents. 

(c)  Does  a  note  made  payable  at  the  Home  Savings  Bank 
make  the  bank  the  agent  of  the  owner  ? 

(d)  Name  the  requisites  of  agency. 

9.  Define  a  partnership. 

(b)  What  is  the  difference  between  an  ordinary  partner 
nership  and  a  limited  partnership? 

(c)  Tell  what  you  know  about  a  limited  partnership. 

(d)  In  what  ways  may  a  partnership  be  formed? 

(e)  In  ordinary  partnerships  to  what  extent  may  one  part- 
ner bind  the  firm : 

(1)  As  to  making  sales? 

(2)  As  to  incurring  debts? 

10.  What  is  the  object  of  a  bankrupt  law? 

(b)  What   courts   have   jurisdiction   in   bankruptcy   cases 
and  why? 

(c)  In  what  way  may  a  corporation  become  bankrupt? 


COMMERCIAL  LAW 


Saturday,  July  24,  1909,  from  8:00  A.  M.  to  12  M. 


i.    (a)  What  are  the  advantages  of  bankruptcy  laws? 

(b)  What  are  the  exceptions  to  the  rule  that  on  the  bankruptcy 
of  a  firm,  and  of  an  individual  member  of  that  firm,  the 
joint  and  separate  creditors  cannot  prove  in  competition 
with  one  another? 


74  .MICHIGAN  C.  P.  A.  MANUAL 

2.  (a)   Has  the  master  of  a  ship  the  power  to  bind  the  owner 

when  he  signs  a  Bill  of  Lading  and  the  goods  are  not  yet 
on  board?     Give  reason  for  your  answer. 

(b)   What   is   the   difference   between   "registry"   and   "enroll- 
ment" in  the  law  of  shipping? 

3.  (a)    Name  and  define  the  three   (3)   most  important  forms  of 

guaranty, 
(b)    Is  a  guaranty  negotiable?     State  reason  for  answer. 

4.  (a)    In  what  proportion  to  the  actual  paid  up  capital  of  a  Mich- 

igan corporation  may  preferred  stock  be  issued  ? 

(b)  What  must  be  expressed  on  the  face  of  preferred  stock 
certificates  as  regards  their  redemption,  etc.  ? 

(c)  When    cumulative   dividends    are   permitted,    what   is    the 
maximum  rate  per  cent,  per  annum  ? 

(d)  Does  the  preferred  stock  vote  the  same  as  the  common 
stock  ? 

(e)  Under  what  conditions  would  preferred  stock  have  equal 
rights  with  the  common  stock  in  the  control  of  a  corpora- 
tion? 

5.  In  what  three  (3)  ways  may  an  employee  seek  redress  for  an 
employer's  improper  breach  of  contract  for  a  fixed  salary  pay- 
able at  regular  intervals? 

6.  (a)   Distinguish   the   difference   between   an   open   and   stated 

account. 

(b)  To  what  extent  is  an  account  stated  conclusive? 

(c)  Does  the  mere  rendering  of  an  account  make  it  an  account 
stated? 

(d)  On  what  grounds  may  an  account  stated  be  opened? 

7.  (a)   What  is  a  contract? 

(b)  How  is  a  contract  made? 

(c)  What  are  some  kinds  of  contracts  that  must  be  under  seal? 

(d)  Which  contracts  if  made  on  Sunday  are  void,  and  which 
are  not  void? 

(e)  Give  examples  of  contracts  which  are  illegal  at  common 
law. 

(f)  Draw   up  a  contract  in  legal   form  between   a   Company 
and  a  Branch  House  Manager,  covering  the  period  of  em- 
ployment, salary,  the  various  duties,  and  other  terms,  etc., 
in    accordance    with    the    following   information :      Salary 
$5,000.00  per  annum,  payable  semi-monthly,  the  Company 
agreeing  to  allow  the  Manager  a  one  per  cent,  commission 


MICHIGAN  C.  P.  A.  MANUAL  75 

as  additional  compensation  at  the  end  of  the  year  on  all  net 
business  handled  through  the  Branch  in  excess  of  $500,- 
ooo.oo.  Further,  if  the  expense  of  joint  business  at  the 
Branch  shall  be  less  than  10%  of  the  gross  sales,  then  the 
Manager  is  to  receive  one-third  of  such  saving  in  the  ex- 
pense of  operating.  This  agreement  may  be  terminated  at 
any  time  upon  written  notice  being  properly  served.  This 
is  not  to  be  an  agency  arrangement.  An  arbitration  clause 
in  case  of  a  dispute  in  settlement,  and  any  other  provisions 
that  you  may  deem  necessary  to  fully  protect  both  the  Com- 
pany's and  Manager's  interests  should  be  included. 

8.  (a)   What  is  a  Patent? 

(b)  What  is  a  Copyright? 

(c)  What  is  a  Trade  Mark? 

(d)  How  are  they  each  obtained  ? 

(e)  What  is  necessary  in  their  assignment? 

(f)  Were  "trade-marks"  known  to  the  common  law? 

(g)  How  do  they  differ  from  Patents  and  Copyrights  in  this 
respect? 

(h)   How  may  a  Patent-right  be  lost? 

(i)   What  is  a  "disclaimer"  and  a  "caveat"? 

9.  (a)   What  is  meant  ;by  the  "doctrine  of  contribution"? 
(b)   Explain  the  doctrine  of  exoneration? 

10.    (a)   How  is  a  partnership  formed? 

(b)  Who  is  a  nominal,  a  secret,  a  dormant,  or  an  ostensible 
partner? 

(c)  Can  the  firm  of  A  &  B  sue  the  firm  of  A  &  C,  there  having 
been  business  dealings  between  the  two  firms? 

(d)  How  may  a  partnership  be  terminated? 


COMMERCIAL  LAW 
Friday,  June  24,  1910,  from  8:30  A.  M.  to  12:30  P.  M. 


i.  (a)  A  company  hires  a  number  of  men,  each  one  separately, 
by  the  week,  at  a  certain  amount  of  wages  per  day.  It  is 
the  rule  to  make  up  the  pay-roll  and  pay  every  Saturday. 
Now  it  happens  frequently  that  one  or  more  of  the  men 
quit  work  before  the  end  of  the  week  or  in  the  middle  of 
the  day  and  demand  their  pay  then  and  there.  To  avoid 


76 


MICHIGAN  C.  P.  A.  MANUAL 


greater  trouble  the  company  has  acceded  to  these  requests 
greatly  to  the  disturbance  of  the  routine  of  the  business. 
Is  the  company  obliged  to  pay  these  men  whenever  it  suits 
them  to  leave,  or  may  payment  be  put  off  till  pay  day? 
Explain  fully. 

(b)  An  employee  is  hired  for  a  term  of  three  months  at  a  sal- 
ary payable  monthly.    No  new  contract  is  made  at  the  end 
of  that  time,  but  the  employee  continues  in  the  service  as 
before.     This  has  gone  on  for  nearly  a  month.     The  em- 
ployer says  he  is  no  longer  in  need  of  the  services  of  the 
employee.    What  are  the  latter's  rights  ? 

(c)  In  the  cash  drawer  of  a  corporation  you  find  a  week's 
wages  of  one  of  the  employees  with  the  notation  on  the 
envelope  "Garnisheed." 

(1)  To  whom  does  this  money  belong? 

(2)  Explain  what  this  notation  "garnisheed"  means. 

(3)  What  action  does  the  corporation  take  in  the  mat- 
ter of  this  garnishee? 

(4)  To  whom  does  the  "garnishee  fee"  belong? 

2.  (a)   What  is  meant  by  the  phrase  "Commercial  Paper?" 

(b)  What  is  meant  by  the  phrase  "Negotiable  Paper?" 

(c)  What  is  meant  by  "Accommodation  Paper?" 

(d)  What  is  the  legal  rate  of  interest  in  Michigan? 

(e)  Paper  falling  due  on  Saturday  is  payable  when? 
(f  )   Is  paper  money  Commercial  Paper? 

(g)   What    advantages    do    negotiable    instruments    have    over 
money  for  commercial  uses? 

3.  (a)   If  a  man  stops  payment  of  a  check  at  the  bank,  and  the 

bank  overlooks  the  fact  and  pays  said  check,  who  loses  it? 

(b)  What  is  an  "account  stated ?" 

(c)  Is  a  writing  up  of  a  depositor's  bank  pass  book  an  account 
stated?. 

(d)  On  June  15,  about  2  P.  M.,  I  deposited  with  a  bank  and 
received  credit  therefor  a  check  on  a  bank  in  Massachusetts. 
On  the  following  day  (i6th)  my  bank  sent  the  check  to  its 
correspondent  who  in  turn  forwarded  it  to  Massachusetts, 
where  it  was  not  presented  until  the   ipth  and  was  then 
protested,  the  drawer  having  failed  and  assigned  on  the 
i8th.    Have  I  not  a  case  against  my  bank  for  lack  of  due 
diligence  in  holding  check  back  one  day?    Explain. 


MICHIGAN  C.  P.  A.  MANUAL 


77 


4.  (a)   A  is  indebted  to  B  for  three  bills,  and  tenders  a  check  for 

a  certain  amount  in  payment  of  all  the  bills.  There  is  a 
difference  in  their  respective  accounts.  B  accepts  this  check 
and  claims  the  difference  from  A,  whereupon  A  claims 
that  the  check  was  made  payable  to  B  in  full  settlement  of 
all  the  bills  and  calls  attention  to  the  fact  that  his  check 
read  that  way.  Does  this  relieve  A  of  the  difference? 
(b)  If  a  bank  accepts  as  collateral  on  a  loan,  indorsed  com- 
mercial paper  maturing  before  the  loan,  there  being  no 
agreement  as  to  the  collection  of  the  collateral  notes,  what 
are  the  bank's  rights,  and  what  is  its  duty  as  to  presentation 
of  the  collateral  and  its  protest,  if  not  paid? 

5.  (a)   A  customer  buys  a  bill  of  goods  from  A.    When  the  bill 

becomes  due,  he  pays  by  check,  the  same  being  made  out 
to  A's  order.  A  happens  to  be  out  of  town  at  the  time  and 
his  bookkeeper  steals  the  check,  forges  A's  endorsement 
and  also  endorses  it,  and  goes  to  a  friend  and  has  it  cashed. 
This  'man  gives  it  in  payment  of  merchandise  to  another 
house,  who  in  turn  deposits  it  in  the  bank.  Who  is  liable 
for  the  amount  paid? 

(b)  Can  a  note  secured  by  collaterals,  payable  on  a  specified 
day,  be  paid  sooner  without  the  consent  of  the  payee? 

6.  (a)   Differentiate  between  "good"  and  'Valuable''  consideration. 

Need  the  consideration  for  a  contract  be  both  good  and 
valuable  ? 

(b)  What  is  the  purpose  of  the  bankruptcy  law? 

(c)  Has  each  state  a  bankruptcy  law? 

(d)  Flow  many  kinds  of  bankruptcy  are  there? 

(e)  May  a  corporation  be  a  voluntary  bankrupt? 

(f)  Does  a  discharge  operate  to   release  the  bankrupt   from 
all  of  his  debts? 

7.  (a)   In  what  ways  may  a  partnership  be  dissolved? 

(b)  Has  a  president,  vice-president  and  secretary-treasurer, 
three  officers  holding  two-thirds  of  the  stock  of  a  corpora- 
tion doing  a  business  of  $70,000  per  annum,  the  right  to 
vote  themselves  $2,400  per  year  each  as  salary,  when  .the 
secretary-treasurer  only  calls  at  the  factory  every  two 
weeks,  to  sign  checks,  and  the  president  and  vice-president 
only  meet  twice  a  year,  and  the  company  pays  no  dividends 
to  the  stockholders?  Explain. 


78  MICHIGAN  C.  P.  A.  MANUAL 

8.  (a)   A  sells  some  railway  stock  to  B,  who  fails  to  have  the 

certificate,  which  has  been  signed  in  blank  on  the  back,  re- 
placed by  a  new  one.  A  dividend  is  declared  to  stockhold- 
ers of  record,  and  the  check  is  sent  to  A.  Who  is  legally- 
entitled  to  the  dividend?  Explain. 

9.  (a)   A  carries  a  stock  of  merchandise  of  the  cash  value  of 

$10,000.00,  and  insures  it  under  the  80  per  cent  co-insur- 
ance clause.  A  rider  attached  to  the  policy  states :  "In 
case  of  loss  the  Company  pays  that  proportion  which  the 
amount  of  this  policy  bears  to  80  per  cent  of  the  cash  value 
of  property  destroyed." 

(b)  If  the  loss  is  total,  what  does  the  Company  pay? 

(c)  If  it  is  a  partial  loss  only,  what  does  the  Company  pay 
according  to  the  contract?     Explain  fully. 

10.  (a)  What  is  your  opinion  as  to  whether  a  claim  can  be  made 
on  the  transportation  company  for  the  loss  of  goods  evi- 
dently stolen  from  the  case  while  in  their  possession?  Here 
are  the  facts :  "A"  shipped  a  clock  company  in  New  York 
City  a  case  of  clocks  by  a  freight  line.  They  received  it  in 
apparently  good  order  and  receipted  for  it  accordingly. 
On  checking  off  the  contents  several  clocks  were  missing. 
The  box  had  evidently  been  opened,  the  clocks  abstracted, 
and  closed  up  again.  The  railroad  having  taken  receipt  as 
"in  good  order,"  disclaim  any  responsibility.  Has  "A" 
any  redress? 

(b)  "A"  contracts  with  "B"  for  the  building  of  a  house.  "B" 
promises  to  complete  it  in  one  year.  If  completed  in  one 
year  and  a  day  can  "A"  claim  breach  of  contract?  Explain. 


COMMERCIAL  LAW 


Saturday,  June  29th,  1912,  from  8:30  A.  M.  to  12:30  P.  M. 


Answer  ten  ( 10)  complete  questions  but  no  more.     Answers  in 
excess  of  the  number  required  will  not  be  considered. 

1.  (a)   Define  commercial  law. 

(b)  Define  statutes. 

(c)  What  are  the  general  divisions  of  law? 

2.  (a)   What  is  meant  by  the  Statute  of  Frauds? 

(b)   Does  the  Statute  serve  any  useful  purpose  at  the  pres- 
ent time  ? 


MICHIGAN  C.  P.  A.  MANUAL  79 

3.  (a)   Give  an  example  of  a  business  transaction  which  consti- 

tutes a  contract  ? 
(b)   What  are  the  elements  of  a  contract? 

4.  (a)   Can  contracts  be  made  by  letter  and  telegraph? 

(b)  Does  a  revocation  by  wire  or  letter  have  to  be  received  to 
be  effective? 

(c)  Does  an  acceptance  by  wire  or  letter  have  to  be  received 
by  the  offerer  to  constitute  a  valid  acceptance  ? 

5.  (a)   What  makes  a  contract  illegal? 

(b)  Give  an  example  of  an  illegal  contract. 

(c)  What  is  meant  by  a  conflict  of  law? 

6.  (a)   Define  warranty. 

(b)  Define  bankruptcy. 

(c)  Enumerate  acts  of  bankruptcy. 

(d)  Define  agency, 

(e)  Explain  termination  of  agency  by  operation  of  law. 

7.  (a)   In  Michigan  what  is  the  legal  rate  of  interest? 

(b)   What  is  the  highest  interest  rate  that  may  be  agreed  upon 
in  Michigan? 

8.  (a)   Define  partnership. 

(b)  Define  survivorship. 

(c)  What  is  a  corporation? 

(d)  What  is  the  franchise  of  a  corporation? 

(e)  Classify  corporations. 

9.  (a)   Is  a  consolidated  corporation  liable   for  the  debts  of  its 

component  corporations  ? 

(b)  Define  and  give  an  example  of  watered  stock. 

(c)  May  a  stockholder  force  the  corporation  to  pay  a  dividend? 

10.  (a)   What  is  a  negotiable  instrument? 

(b)  What  are  Registered  bonds? 

(c)  What  are  coupon  bonds ? 

(d)  Distinguish   the   difference   between   foreign   bills   of   ex- 
change and  inland  bills  of  exchange. 

(e)  What  are  the  two  essential  features  of  a  bill  of  lading? 

11.  (a)   What  is  the  purpose  of  a  trade-mark? 

(b)  What  length  of  time  is  required  to  obtain  a  valid  trade- 
mark ? 

(c)  Who  may  register  trade-marks? 

(d)  When  may  they  be  registered? 

12.  (a)   Define  a  will. 

(b)   What  are  the  common  statutory  requirements  of  a  will? 


8o  MICHIGAN  C.  P.  A.  MANUAL 

13.  (a)   Classify  Federal  Courts. 

(b)  Does  the  United  States  Circuit  Court  of  Appeals  have  any 
original  jurisdiction? 

(c)  By  what  authority  are  state  courts  established? 

14.  In  a  certain  stock  corporation  only  50%  of  the  subscribed  capi- 
tal has  been  called.     Mr.  Van  Oss  has  paid  all  the  installments 
called  and  has  loaned  to  the  company  an  additional  sum,  for 
which  he  has  taken  its  promissory  note,  and  has  transferred  the 
note  to  Mr.  Lyon,  who  demands  payment.     May  the  company 
call  further  installments  on  Mr.  Van  Oss'  stock,  and  offset  the 
amount  so  called  against  the  promissory  note  held  by  Mr.  Lyon  ? 
Explain  in  detail  your  answer. 

15.  (a)   Explain  the   distinction  between   surcharging  an   account 

and  falsifying  an  account. 

(b)  What  is  the  purpose  of  the  Corporation  Tax  Law  of  1909? 

(c)  What  is  required  of  corporations'by  its  various  provisions? 


COMMERCIAL  LAW 


Thursday,  June  12,  1913,  from  8:00  A.  M.  to  12:00  M. 


1.  Give  the  essential  differences  between  a  private  corporation  and 
a  co-partnership. 

2.  Wherein  does  an  ordinary  co-partnership  differ  from  a  partner- 
ship association  limited? 

3.  Can  a  married  woman  become  the  business  partner  of  her  hus- 
band or  of  any  other  person  under  the  laws  of  Michigan,  so  as 
to  render  her  liable  for  partnership  debts? 

4.  If  a  promissory  note  is  given  by  a  husband  and  wife  in  pay- 
ment of  property  purchased  by  them  for  their  joint  use,  can 
the  wife  be  made  individually  liable  on  the  note? 

5.  If  you  were  auditing  the  books  of  a  private  corporation  and  you 
found  that  the  treasurer's  bond  was  signed  by  a  marriel  woman 
as  one  of  the  sureties  and  that  she  had  qualified  under  oath  on 
the  bond  as  owning  the  requisite  amount  of  property  in  her 
own  name,  what  reference  or  recommendation,  if  any,  would 
you  make  in  your  report  in  reference  to  this  bond? 

6.  What  are  the  essential  differences  between  a  municipal  corpora- 
tion and  a  public  utility  corporation? 


MICHIGAN  C.  P.  A.  MANUAL  81 

7.  In  transferring  a  stock  of  merchandise  in  Michigan  by  bill  of 
sale  or  otherwise,  name  some  of  the  provisions  of  the  so-called 
"Bulk  Sales  Law"  which  must  be  complied  with. 

8.  Is  it  necessary  to  protest  a  promissory  note  made  in  Michigan 
and  payable  in  Michigan  in  order  to  hold  the  endorsers  liable? 

9.  If  a  promissory  note  in  Michigan  specifies  that  it  shall  draw 
interest  but  does  not  specify  the  rate,  what  rate  of  interest 
should  be  computed  on  the  note? 

10.  Compute  the  interest  due  on  each  of  the  following  notes  at 
maturity,  assuming  that  no  interest  has  been  paid  on  either: 

1.  $1000.00  Detroit,  Michigan,  June  12,  1913. 
Two  years  after  date  I  promise  to  pay  to  the  order  of  Richard 
Roe  One  Thousand  Dollars  with  interest  at  the  rate  of  six 
per  cent,  per  annum.  JOHN  DOE. 

2.  $1.000.00  Detroit,  Michigan,  June  12,   1913. 
Two  years  after  date  I  promise  to  pay  to  the  order  of  Richard 
Roe  One  Thousand  Dollars  with  interest  at  the  rate  of  six 
per  cent  per  annum,  payable  annually.  JOHN  DOE. 

u.  If  a  promissory  note  is  given  on  July  4th  in  payment  of  goods 
purchased  and  delivered  on  the  same  day,  would  the  fact  that 
the  transaction  occurred  on  a  legal  holiday  affect  the  legality 
of  the  note? 

12.  If  a  promissory  note  is  signed  on  the  ist  day  of  the  week  in 
payment  of  goods  purchased  and  delivered  on  Sunday,  will  the 
fact  that  the  transaction  occurred  on  the   Sabbath  affect  the 
legality  of  the  note? 

13.  If  a  contract  is  usurious  on  its  face  will  the  debtor  be  relieved 
from  the  obligation  to  pay  the  principal  and  interest?     State 
what  he  will  be  obliged  to  pay,  if  anything. 

14.  If  a  forged  promissory  note  gets  into  the  hands  of  a  bona  fide 

purchaser  for  value  and  without  notice,  can  he  enforce  pay- 
ment against  the  party  whose  name  is  forged? 

15.  What  are  the  two  principal  reasons  why  deeds,  mortgages  and 
other  instruments  affecting  the  title  to  real  estate  should  be 
recorded  with  the  Register  of  Deeds? 

1 6.  If  you  were  auditing  the  books  of  a  mercantile  company  and 
you  found  that  they  were  extending  credit  to  their  customers 
and  taking  security  in  the  form  of  a  bill  of  sale  on  personal 
property,  what  recommendation,  if  any,  would  you  make  in  your 
report  as  to  the  validity  and  wisdom  of  this  form  of  security, 
and  what  would  you  recommend  as  a  substitute  and  why? 


82  MICHIGAN  C.  P.  A.  MANUAL 

17.  John   Doe  gives   Richard   Roe   the   following   in   payment   for 
goods  sold  and  delivered,  viz : 

$500.00  Detroit,  Michigan,  June  12.  1913. 

Sixty  days  after  date  I  promise  to  pay  to  Richard  Roe  Five 
Hundred  Dollars  with  Interest  at  6%  per  annum.  Value  re- 
ceived. JO'HN  DOE. 

Before  maturity  Roe  sells  the  above  instrument  for  value  to 
John  Smith.  As  evidence  of  the  transfer  Roe  signs  his  name 
across  the  back  of  the  paper  'Richard  Roe."  It  is  not  paid  at 
maturity.  Can  Smith  recover  against  Richard  Roe  on  his  en- 
dorsement? If  not,  why  not? 

18.  John  Doe  and  Richard  Roe  have  a  mutual  open  account  and 
at  the  end  of  their  dealings  they  have  a  settlement  and  in  such 
settlement  it  is  found  that  Doe  owes  Roe  $100.00  which  he  pays, 
taking  a  receipt  in  full.     A  week  later  later  Roe  finds  that  by 
mutual  mistake  an  item  of  $50.00  in  his  favor  was  overlooked 
in  the  settlement.     Can  Roe  after  giving  a  receipt  in  full  re- 
cover of  Doe  the  $50.00  w7hich  was  overlooked  by  mutual  mis- 
take?   Give  reasons. 

19.  Jones  owes  Smith  $500.00  on  open  account  for  goods  sold  and 
delivered.     He  also  owes  Smith  $1,000.00  for  money  borrowed, 
this  latter  debt  being  represented  by  a  promissory  note.     The 
note   lacks    one    day    of   being   outlawed.      Jones    pays    Smith 
$200.00  in  cash  on  his  debt  and  asks  that  it  be  applied  on  the 
open  account.     Can  Smith  ignore  this  request  and  apply  the 
$200.00  on  the  note  so  as  to  save  it  from  the  statute  of  limita- 
tions? 

20.  Jones  sells  and  delivers  to  Smith  an  automobile  under  a  Written 
contract  reserving  title  in  Jones  until  the  car  is  fully  paid  for. 
The  sale  is  made  in  good  faith  but  the  contract  is  not  filed  nor 
recorded.     Doe  purchases  the  car  of  Smith  for  value  in  good 
faith  and  without  notice  of  the  title  contract.    Does  Doe  get  any 
title  as  against  Smith?     If  not,  give  reasons. 

21.  Can  A  make  a  binding  agreement  to  purchase  of  B  goods  for 
$45.00  without  one  of  the  following: 

(a)  Written  agreement  or  memorandum  signed,  or 

(b)  Part  payment,  or 

(c)  Delivery  in  whole  or  in  part. 

Would  the  rule  be  any  different  if  the  contract  price  was  $50.00 
or  upwards? 


MICHIGAN  C.  P.  A.  MANUAL  83. 

22.  (jive  an  illustration  of  a  debt  or  claim  that  is  not  dischargeable 

in  bankruptcy. 

23.  If  a  chattel  mortgage  is  given  by  a  debtor  while  he  is  insolvent 
as  a  security  for  a  past  indebtedness  and  100  days  after  giving 
the  mortgage  he  is  adjudicated  bankrupt,  is  the  mortgage  good 
as  to  the  debtor's  exemption  of  $250.00?    Is  the  mortgage  good 
against  the  remaining  creditors? 

24.  What  legal  effect  does  the  death  of  a  co-partner  have  on  the 
life  of  the  co-partnership? 

25.  In  auditing  the  books  of  a  corporation  you  obtained  conclusive 

evidence  that  an  officer  of  the  company  had  criminally  em- 
bezzled $2000.00  of  the  funds  of  that  company.  When  con- 
fronted with  the  evidence  of  his  guilt  the  defaulter  promised 
to  you  and  your  client  that  he  would  repay  the  $2000.00  forth- 
with if  you  promised  him  immunity  from  criminal  prosecution. 
Assuming  that  the  defaulter  is  uncollectible,  would  you  recom- 
mend that  your  client  promise  him  immunity  in  order  to  recover 
the  $2000.00  ?  Give  reasons. 


COMMERCIAL  LAW 


Saturday,  December  27,  1913,  from  8  130  A.  M.  to  12  130  P.  M. 


Under  Act  165  of  1911,  Bills  of  Lading  issued  by  Common  Car- 
riers must  be  uniform.     Under  this  law : 

(a)  When  is  a  Bill  of  Lading  negotiable? 

(b)  When  is  a  Bill  of  Lading  non-negotiable  or  what  is  known 
as  a  straight  Bill  of  Lading? 

(c)  This  law  requires  every  Bill  of  Lading  to  contain  seven 
essential  facts.     Name  as  many  of  them  as  you  can. 

Under  Act  303  of  1909,  provision  is  made  for  uniform  ware- 
house receipts.    Under  this  law : 

(a)  What  are  some  of  the  facts  which  must.be  embodied  in 
every  warehouse  receipt? 

(b)  Give  an  illustration  of  a  non-negotiable  warehouse  receipt. 

(c)  Give  an  illustration  of  a  negotiable  warehouse  receipt. 

(d)  When  a  negotiable  warehouse  receipt  is  transferred,  what 
effect  does  it  have  upon  the  title  of  the  property  represented 
by  the  warehouse  receipt? 


84  MICHIGAN  C.  P.  A.  MANUAL 

3.  Under  Act  100  of  1913,  the  law  of  sales  of  goods  is  made  uni- 
form.   Under  this  law : 

(a)  What  contracts  for  the  sale  of  goods  are  valid  without  any 
writing    and    without    any    part    payment    and    without 
delivery  ? 

(b)  What  contracts  must  be  evidenced  either  by  writing  or  by 
part  payment  or  by  delivery  in  order  to  render  them  valid  ? 

4.  Jones  is  assessed  Five  Hundred  Dollars  on  personal  property 
owned  by  him  which  taxes  are  unpaid.    He  also  obtained  credit 
at  a  bank  by  falsely  representing  the  amount  of  property  he 
owned  and  he  now  owes  the  bank  One  Thousand  Dollars,  which 
was  loaned  to  him,  relying  on  such  representation.     He  also 
appropriated  to  his  own  use,  money  which  he  held  as  guardian 
of  a  minor.     Subsequently  he  filed  his  petition  in  bankruptcy 
and  in  due  course  of  time   obtained  his  discharge.    Will  his  dis- 
charge operate  as  a  bar  or  discharge  of  any  of  the  above  debts 
or  obligations?     In  other  words,  can  the  above  obligations  be 
enforced  against  him  after  he  obtains  his  discharge,  if  he  sub- 
sequently acquires  property? 

5.  Under  Act  223  of  1905,  the  sale  or  transfer  of  stocks  of  goods, 
merchandise  and  fixtures  in  bulk  is  regulated.    Under  this  law : 

(a)  State  some  of  the  things  that  must  be  done  to  make  a 
sale  of  a  stock  of  merchandise  in  bulk  legal  in  a  case  where 
the  vendor  has  debts  and  the  creditors  object. 

(b)  What  is  the  effect  of  a  sale  of  a  stock  of  goods  without 
complying  with  this  law? 

6.  Under  the  Income  Tax  Law  recently  enacted  by  Congress : 

(a)  What  tax  must  an  unmarried  man  pay  the  Federal  Gov- 
ernment on  a  net  income  of  Forty-five  Hundred  Dollars 
per  year? 

(b)  What  tax  must  a  married  man  pay  on  a  net  income  of  Five 
Thousand  Dollars  per  year? 

(c)  Does  the  Income  Tax  Law  apply  to  corporations  as  well 
as  to  individuals? 

(d)  Is  a  partnership  as  such,  required  to  pay  an  income  tax 
under  this  law? 

7.  A  married  woman  in  Michigan  signs  articles  of  co-partnership ; 
the  other  two  co-partners  each  contribute  a  like  amount  but 
they  have  no  property  except  what  they  have  contributed  to  the 
business ;  the  married  woman  has  other  property  in  her  own 
name  outside  of  the  business ;  the  co-partnership  becomes  in- 
solvent.    On  the  above  facts: 


MICHIGAN  C.  P.  A.  MANUAL  85 

(a)  After  the  assets  of  the  firm  have  been  exhausted  in  paying 
partnership  debts,  can  the  creditors  hold  the  married  wo- 
man liable  for  the  residue  of  debts  of  the  firm? 

(b)  Can  a  married  woman  legally  become  the  business   co- 
partner of  her  husband  or  of  any  other  person  in  Michigan? 

(c)  What  recommendation,  if  any,  would  you  make  in  your 
report  if  you  were  auditing  the  books  of  a  co-partnership, 
where   one  of   the  members   of   the  firm  was  a  married 
woman  ? 

8.  If  you  were  auditing  the  books  of  any  mercantile  institution  and 
you  found  that  they  were  extending  credit  to  customers   on 
notes  signed  by  the  purchaser  and  endorsed  by  married  women, 
what  recommendation,  if  any,  would  you  make  in  your  report, 
in  regard  to  the  validity  of  such  endorsements? 

9.  (a)   What  is  the  legal  rate  of  interest  in  Michigan,  meaning 

what  rate  of  interest  would  be  computed  upon  an  instru- 
ment which  called  for  interest  but  did  not  specify  the  rate? 
(b)  What  is  the  contract  rate  of  interest  in  Michigan,  meaning 
what  is  the  maximum  rate  that  can  be  provided  for  in  a 
contract  without  being  usurious  ? 

10.  Jones  gives  Doe  his  note  for  One  Thousand  Dollars,  payable 
in  one  year,  with  interest  at  the  rate  of  nine  per  cent  per  annum. 
How  much  can  Doe  collect  at  maturity? 

11.  Jones  gives  Doe  his  note  for  One  Thousand  Dollars,  payable 
in  two  years  with  interest  at  the  rate  of  six  per  cent  per  annum. 
He  also  gives  Doe  his  note  for  One  Thousand  Dollars,  payable 
in  two  years  with  interest  at  the  rate  of  six  per  cent  per  annum, 
payable  annually.     Assuming  no  interest  is  paid  on  either  of 
the  notes  until  maturity : 

(a)  How  much  interest  will  be  due  on  the  first  note  at  maturity? 

(b)  How  much  interest  will  be   due   on  the   second   note  at 
maturity  ? 

12.  Under  Act  101  of  1907,  it  was  made  unlawful  for  any  person  or 
persons  to  carry  on  business  in  this  state  under  an  assumed 
or  fictitious  name  without  first  filing  with  the  County  Clerk  a 
certificate,  setting  forth  certain  facts.    Under  this  law : 

(a)  What  are  some  of  the  facts  that  must  be  set  forth  in  this 
certificate  ? 

(b)  What  is  the  purpose  of  this  law? 

(c)  What  would  be  the  effect  in  case  a  person  or  firm  carried 
on  business  under  an  assumed  or  fictitious  name  without 
complying  with  the  law  ? 


.86  MICHIGAN  C.  P.  A.  MANUAL 

(d)  If  you  were  auditing  the  books  of  an  individual  or  co- 
partnership which  had  not  complied  with  this  law,  what 
recommendation,  'if  any,  would  you  make  in  your  report  ? 

13.  Under  Act  164  of  1913,  all  co-partnerships  doing  business  in 
Michigan,  must  file  a  certificate  with  the  County  Clerk,  setting 
forth  certain  information.     Under  this  law : 

(a)  What  are   some  of   the   facts  that  must  be   set   forth   in 
the  certificate? 

(b)  What  is  the  purpose  of  this  law? 

(c)  What  would  be  the  effect  of  a  co-partnership  doing  busi- 
ness in  Michigan  without  complying  with  the  law  ? 

14.  Under  Act  265  of  1905,  the  law  relating  to  negotiable  instru- 
ments is  made  uniform  in  Michigan. 

(a)  What  is  a  negotiable  instrument? 

(b)  What  is  the  meaning  and  effect  of  the  words  "Without 
Recourse"  in  connection  with  an  endorsement  upon  a  prom- 
issory note  ? 

.15.    Under  the  Negotiable  Instrument  Law: 

(a)  If  there  is  a  conflict  between  the  written  and  printed  pro- 
visions in  a  note,  which  one  controls? 

(b)  Where  there  is  a  discrepancy  between  the  words  and  fig- 
ures in  a  note,  which  one  controls? 

(c)  Where  a  note  provides  that  it  is  payable  out  of  a  certain 
and  particular  fund,  is  it  negotiable? 

16.  If  you  were  auditing  the  books  of  a  mercantile  institution  and 
you  found  that  they  were  taking  notes  which  provided  that 
payment  was  to  be  made  out  of  a  particular  fund,  what  recom- 
mendation, if  any,  would  you  make  in  your  report? 

17.  Under  the  Negotiable  Instrument  Law: 

(a)    If  a  note  is  made  and  delivered  on  Sunday,  is  it  valid? 

Give  reasons, 
(ib)  If  it  is  made  and  delivered  on  a  legal  holiday,  is  it  valid? 

Give  reasons. 
(c)  Are  the  words,  "Value  Received,"  legally  necessary  in  a 

promissory  note? 

1 8.  Under  the   Negotiable   Instrument   Law,   does   ante-dating   or 
post-dating  invalidate  an  instrument : 

(a)  Where  it  is  done  for  an  innocent  purpose?    Give  reasons. 

(b)  Where  it  is  done  for  a  fraudulent  purpose?    Give  reasons. 


MICHIGAN  C.  P.  A.  MANUAL  87 

n;.     I'ndcr  the  Xegotiable  Instrument  Law: 

(a)  Under  what  circumstances  may  an  agent  legally  sign  his 
principal's  name  to  a  note  and  make  it  binding? 

(b)  Is  it  necessary  that  the  agent  have  written  authority? 

20.  In  auditing  the  books  of  a  client,  you  obtained  convincing 
evidence  that  an  employee  of  the  company  had  criminally  ap- 
propriated to  his  own  use  some  of  the  funds  of  the  company 
and  when  he  was  apprised  that  the  evidence  of  his  guilt  was 
in  the  possession  of  you  and  his  employer,  he  promised  that 
he  would  repay  the  shortage  with  interest  if  you  and  his  em- 
ployer would  promise  him  immunity  from  criminal  prosecu- 
tion. Assuming  that  the  defaulter  is  uncollectable,  would  you 
advise  your  client  to  promise  him  immunity  in  order  to  recover 
the  money  ?  Give  your  reasons. 


COMMERCIAL  LAW 


Saturday,  June  27,  1914,  from  8:00  A.  M.  to  12:00  M. 


1.  (a)   What  is  the  difference  between  an  express  contract  and  an 

implied  contract? 
(b)   What  persons  are  not  capable  of  contracting? 

2.  (a)   To  what  extent  may  a  married  woman  make  valid  contracts 

in  Michigan  ? 

(b)  Is"  the  validity  of  a  contract  governed  by  the  law  of  the 
state  where  the  contract  is  made,  or  the  law  of  the  state 
where  it  is  to  be  enforced? 

3.  What  are  the  rules  for  the  appropriation  of  payments  made  by 
a  person  who  owes  several  debts  to  the  same  creditor  ? 

4.  (a )   What  is  the  purpose  of  the  Bulk  Sales  Law,  being  Act  223 

of  1905  regulating  the  transfer  of  stocks  of  goods,  mer- 
chandise and  fixtures  in  bulk? 

(b)  What  remedy  has  the  creditor  where  the  debtor  transfers 
his  stock  in  bulk  without  complying  with  the  law? 

(c)  Can  the  purchaser  of  a  stock  claim  immunity  on  the  ground 
that  he  bought  the  goods  in  good  faith  for  value  and  did 
not  know  of  the  existence  of  the  Bulk  Sales  Law  ? 

5.  Where  personal  property  of  the  value  of  $100.00  or  upwards 
is  sold,  what  are  the  three  elements  specified  in  the  Statute  of 
Frauds,  the  doing  of  any  of  which  will  make  the  sale  valid? 


88  MICHIGAN  C.  P.  A.  MANUAL 

6.  (a)   What  is  meant  by  negotiability? 

(b)  What  is  the  difference  between  foreign  and  inland  bills 
of  exchange? 

(c)  Do  inland  bills  of  exchange  have  to  be  protested  in  Mich- 
igan? 

7.  Are  the  words  "Value  Received"  essential  to  the  validity  of  a 
note  or  bill? 

8.  (a)   Define  an  endorsement  in  blank. 

(b)  Define  an  endorsement  in  full. 

(c)  Define  an  endorsement  without  recourse. 

(d)  Define  a  restrictive  endorsement. 

9.  What  is  usury  and  what  is  its  effect  upon  contracts  in  Michigan  ? 

10.  (a)   Is  the  individual  property  of  a  co-partner 'liable  for  co- 

partnership debts? 

(b)  Can  a  husband  and  wife  become  partners  in  Michigan? 

(c)  Can  a  co-partnership  hold  real  estate  in  its  firm  name? 

11.  (a)   Name  some  of  the  provisions  which  should  be  contained  in 

all  articles  of  co-partnership, 
(b)   What  is  meant  by  the  good  will  of  a  partnership? 

12.  (a)   What  is  the  legal  status  of  a  contract  made  on  Sunday? 
(b)   What  is  the  legal  status  of  a  contract  made  on  a  legal 

holiday  ? 

13.  What  debts  are  not  dischargeable  in  bankruptcy? 

14.  (a)   In  what  way  must  a  legal  tender  be  made ? 

(b)   What  effect  does  it  have  upon  the  debt  if  not  accepted? 

15.  (a)   What  real  estate  can  a  householder  claim  as  exempt  from 

execution  in  Michigan? 

(b)  What  personal  property  can  he  claim  as  exempt  from  exe- 
cution in  Michigan? 

16.  (a)   Under  the  Michigan  Mortgage  Tax  Law  (Act  91  of  1911) 

what  tax  would  the  mortgagee  have  to  pay  on  a  mortgage 
of  $350.00? 

(b)  Would  the  tax  vary  in  the  case  of  a  mortgage  maturing 
in  six  months  and  another  of  like  amount  maturing  in 
five  years? 

17.  (a)   Where  land  is  sold  on  land  contract,  to  whom  is  the  land 

assessed  and  who  pays  the  taxes  on  the  land  ? 

(b)  Who  pays  the  taxes  on  the  interest  of  the  vendor  in  the 
contract? 

(c)  Would  the  interest  of  "the  vendor  in  such  a  land  contract 
be  subject  to  taxation  under  the  Mortgage  Tax  Law  or 
under  the  "advalorem  svstem?" 


MICHIGAN  C.  P.  A.  MANUAL  &9 

1 8.  Explain  the  difference  between  an  executor  and  an  adminis- 
trator. 

19.  (a)   What  is  the  legal  rate  of  interest  in  Michigan,  meaning 

the  rate  of  interest  which  would  be  computed  upon  an  in- 
strument which  called  for  interest  but  did  not  specify  the 
rate? 

(b)  What  is  the  contract  rate  of  interest  in  Michigan,  meaning 
what  is  the  maximum  rate  that  can  be  provided  for  in  a 
contract  without  being  usurious  ? 

20.  If  you  were  auditing  the  books  of  a  mercantile  institution  and 
you  found  that  they  were  taking  notes  which  provided  that 
payment  was  to  be  made  out  of  a  particular  fund,  what  recom- 
mendation, if  any,  would  you  make  in  your  report? 


COMMERCIAL  LAW 


Wednesday,  December  23,  1914,  from  1 130  P.  M.  to  5  130  P.  M. 


1.  What  are  the  duties  of  a  city  comptroller  or  city  controller? 

2.  (a)   Under  the  new  Revenue  Tax  Law  which  became  effective 

December   I,   1914,  name  the  different  instruments   upon 
which  a  revenue  stamp  must  be  affixed. 

(b)  What  is  the  effect  of  a  failure  to  place  a  revenue  stamp 
on  a  document  which  is  subject  to  the  tax? 

(c)  Where  a  bank  had  a  capital  of  $100,000.00,  a  surplus  of 
$50,000.00  and  undivided  profits  of  $25,000.00,,  what  tax 
would  it  be  required  to  pay  under  this  law  ? 

(d)  What  tax,  if  any,  would  be  imposed  under  this  law  on  a 
renewal  note  of  $140.00? 

(e)  A  real  estate  mortgage  is  given  to  secure  the  payment  of 
a  note  of  $1000.00.    What  stamp  tax,  if  any,  is  required  on 
the  note  and  mortgage? 

(f)  What  tax,  if  any,  is  imposed  by  this  law  on  a  deed  of 
lands  wherein  the  consideration  is  $90.00? 

(g)  Who  is  primarily  liable  for  the  payment  of  the  stamp  tax, 
the  man  who  issues  the  paper  or  the  man  to  whom  the 
paper  or  document  is  delivered? 

(h)   When  does  this  Revenue  Tax  Law  expire  by  limitation? 

3.  (a)   What  are  the  essential  differences  between  a  stock  plan 

insurance  company  and  a  mutual  insurance  company? 


9o  MICHIGAN  C.  P.  A.  MANUAL 

(b)  What  are  some  of  the  arguments  in  favor  of  insuring  in 
a  stock  plan  or  old  line  company  ? 

(c)  What  are  some  of  the  arguments  in  favor  of  insuring  in 
a  mutual  insurance  company? 

(d)  What  are  some  of  the  objections  or  arguments  against  in- 
suring in  a  mutual  insurance  company? 

(e)  What  is  the  legal  effect  if  the  assured  without  the  knowl- 
edge or  consent  of  the  insurer,  places  a  mortgage  upon 
the  insured  property? 

(f  )  What  is  the  legal  effect  if  the  insured,  without  the  consent 
of  the  insurer,  sells  the  property  covered  by  the  policy? 

(g)  Under  the  Michigan  standard  form  of  fire  insurance  policy, 
what  is  the  effect  if  insurance  is  written  on  a  building- 
located  on  land  not  owned  by  the  assured,  where  there  is 
no  endorsement  on  the  policy  indicating  the  want  of  owner- 
ship of  the  land? 

4.  (a)   On  January  I,  1913,  Doe  gives  Rowe  his  note  for  $1000.00 

payable  in  one  year  with  interest  at  the  rate  of  6%  per 
annum.  Neither  principal  nor  interest  are  paid  until 
January  i,  1915.  What  amount  is  then  due? 

(b)  A  note  is  given  on  January  i,  1910,  payable  in  throe  years 
with  interest  at  the  rate  of  6%  per  annum,  payable  annu- 
ally.    Neither  principal  nor  interest  are  paid  until  January 
i,  1915.     Can  you  compute  interest  on  the  installment  of 
interest  maturing  January  i,  1914,  until  the  note  is  paid? 

(c)  What  is  the  Michigan  rule  for  partial  payments? 

5.  (a)   What  is  usury? 

(b)  What  is  the  legal  rate  of  interest  in  Michigan? 

(c)  What  is  the  contract  rate  of  interest  in  Michigan? 

(d)  What  is  the  effect  in  Michigan  if  the  borrower  contracts 
for  a  greater  rate  of  interest  than  that  allowed  by  law  ? 

(e)  If  Doe  loans  Smith  money  on  a  real  estate  mortgage  re- 
serving interest  at  the  rate  of  7%  per  annum  and  requires 
Smith  to  pay  the  mortgage  tax,  is  this  contract  usurious  ? 

6.  (a)   A  note  contains  a  clause  providing  that  upon  default  in  pay- 

ment of  any  installment  or  interest  the  whole  amount  shall 
become  due.  Does  this  clause  destroy  the  negotiability  of 
the  note  under  the  Negotiable  Instrument  Law  ? 

(b)  Is  a  note  payable  one  year  after  the  death  of  John  Jones, 
negotiable  ? 

(c)  Is  a  note  payable  one  year  after  John  Jones  sells  his  farm, 
negotiable  ? 


MICHIGAN  C.  P.  A.  MANUAL  91 

(d)  Are  the  words  "value  received"  necessary  in  a  promissory 
note? 

(e)  Can  a  note  legally  be  drawn  up  and  delivered  on  December 
1 8th  and  ante-dated  December  nth? 

(f )  Where  the  sum  to  be  paid  in  a  note  is  expressed  in  words 
and  also  in  figures  and  there  is  a  discrepancy  between  the 
two,  which  governs  ? 

(g)  Where  the  instrument  provides  for  the  payment  of  interest 
without  specifying  the  date  from  which  interest  is  to  run, 
from  what  date  do  you  compute  interest? 

(h)   Where  there  is  a  conflict  between  the  written  and  the  print- 
ed provisions  of  an  instrument,  which  governs? 
7.    (a)   Can  Doe  sign  Rowe's  name  to  a  note  in  such  wise  as  to 
render  Rowe  liable,  providing  the  latter  was  not  present? 

(b)  Where  John  Jones  signs  a  note  "John  Jones  as  Adminis- 
trator" is  Jones  personally  liable  on  the  note  if  he  had  au- 
thority to  sign  the  note  as  administrator?    Is  he  personally 
liable  if  he  had  no  authority  to  sign  as  administrator? 

(c)  Doe  forges  Rowe's  name  to  a  note;  is  Rowe  liable  on  the 
note  if  it  passed  into  the  hands  of  a  bona  fide  holder  for 
value  and  without  notice  ? 

(d)  Under  what  circumstances  may  a  person  become  a  holder 
in  due  course  or  bona  fide  holder  of  demand  paper  ? 

(e)  Would  a  person  be  a  bona  fide  holder  of  demand  paper 
which  he  purchased  three  months  after  its  issuance? 

(f)  Where  a  party  placed  his  name  on  the  back  of  a  note  be- 
fore delivery  to  the  payee,  is  he  a  joint  maker  or  endorser? 

(g)  Is  presentment  for  payment,  demand  and  notice  of  non- 
payment still  necessary  in  Michigan  in  order  to  hold  en- 
dorsers liable? 

(h)  What  method  can  a  bank  or  other  financial  institution 
adopt  so  as  to  avoid  the  necessity  of  presentment  for  pay- 
ment, demand  and  notice  of  non-payment? 

^8.    (a)   Where  a  note  falls  due  on  a  legal  holiday,  Sunday  or  an 
election  day,  when  must  it  be  presented  for  payment  ? 

(b)  Where  a  note  falls  due  on  Saturday,  when  must  it  be  pre- 
sented for  payment  ? 

(c)  Are  days  of  grace  still  allowed  under  the  laws  of  Michigan? 

(d)  Under  what  circumstances  will  an  agreement  between  the 
maker  and  holder  of  a  note  to  extend  the  time  of  payment 
not  release  the  indorser? 

(e)  Can  the  drawer  of  a  check  stop  payment  on  it  by  notifica- 
tion to  the  bank  after  it  has  passed  out  of  his  hands? 


92  MICHIGAN  C.  P.  A.  MANUAL 

(f)  Wherein  does  a  certified  check  differ   from  an  ordinary 
one? 

(g)  A  gives  his  check  payable  to  B  on  X  bank.     B  sells  the 
check  to  C  and  C  takes  it  to  the  bank  and  has  it  certified. 
The  bank  fails  before  C  cashes  the  check.     Is  A  or  B 
liable  to  C  under  those  circumstances? 

9.    (a)   To  what  extent  can  a  married  woman  make  valid  contracts 
in  Michigan? 

(b)  Can  a  married  woman  endorse  a  note  and  make  herself 
personally  liable? 

(c)  Is  a  married  woman  liable  as  surety  on  a  bond? 

10.  (a)   What  are  the  two  principal  reasons  why  deeds,  mortgages 

and   other   instruments   affecting   the   title   to    real   estate 
should  be  recorded  with  the  register  of  deeds? 
(b)   What  is  the  principal  reason  why  a  chattel  mortgage  should 
be  filed  with  the  city,  village  or  township  clerk? 

11.  (a)   What  do  you  understand  by  the  Statute  of  Frauds  as  ap- 

plied to  the  sale  of  personal  property? 

(b)  If  A  sells  B  a  typewriter  for  $90.00  without  any  writing 
or  part  payment  or  delivery,  but  the  agreement  being  other- 
wise complete,  is  the  contract  mutually  binding  ? 

12.  What  debts  are  not  dischargeable  in  bankruptcy? 

13.  (a)   A  and  B  associated  themselves  together  in  business  under 

the  name  of  the  Detroit  Mercantile  Company,  but  failed  to 
file  the  necessary  certificate  with  the  county  clerk.  What 
effect  does  this  omission  have  upon  the  validity  of  con- 
tracts entered  into  by  them? 

(b)  Is  it  necessary  at  the  present  time  for  all  co-partnerships 
to  file  certificates  with  the  county  clerk  of  the  county  where- 
in they  are  transacting  business  ? 

(c)  What  is  the  purpose  of  this  law  and  what  information 
must  be  contained  in  the  certificate  ? 

14.  (a)   What  is  the  legal  status  of  a  contract  made  on  Sunday? 
(b)   What  is  the  legal  status  of  a  contract  made  on  a  legal 

holiday  ? 

15.  (a)   What  are  some  of  the  reasons  which  prompted  the  passage 

of  accountancy  laws  in  the  various  states  ? 

(b)  In  what  way  does  the  accountancy  law  tend  to  protect 
the  public  who  have  occasion  to  employ  public  accountants  ? 

(c)  In  what  way  would  the  status  of  a  certified  public  account- 
ant giving  expert  testimony  upon  the  witness  stand  in  a 
matter  in  which  he  was  professionally  engaged,  differ  from 
that  of  an  accountant  who  was  not  certified  ? 


MICHIGAN  C.  P.  A.  MANUAL  93 


COMMERCIAL  LAW 


Friday,  June  18.  1915,  from  8:00  A.  M.  to  12  M. 


1.  (a)   What  legal  advantages  has  a  certified  public  accountant 

over  one  who  is  not  certified  ? 

(b)  What  legal  advantages,  if  any,  would  be  possessed  by  a 
certified  public  accountant  testifying  as  an  expert,  over 
one  not  so  certified  ? 

2.  (a)   Give  the  legal  reason  why  a  married  woman  cannot  be- 

come the  business  partner  of  her  husband  or  of  any  other 
person  under  the  laws  of  Michigan  so  as  to  render  her 
liable  for  partnership  debts . 

(b)  Give  the  legal  reason  why  a  married  woman  cannot  be  held 
liable  on  a  promissory  note  signed  by  her  and  her  husband 
or  signed  by  her  and  any  other  person,  where  the  considera- 
tion for  the  note  did  not  all  pass  to  her. 

3.  (a)   Would  an  unmarried  woman  be  liable  as  surety  on 'a  bond, 

or  as  endorser  on  a  promissory  note  in  all  cases  where, 
under  the  same  circumstances,  a  man  would  be  liable? 
(b)   Would  a  married  woman  be  liable  as  surety  on  a  bond,  or 
endorser  on  a  promissory  note? 

4.  (a)   Give  some  of  the  essential  requirements  of  the  so-called 

"Bulk  Sales  Law,"  relative  to  a  sale  or  transfer  of  a  stock 
of  merchandise. 

(b)  What  was  the  purpose  of  this  law? 

(c)  What  are  the  consequences  to  the  purchaser  of  a  stock  of 
goods  in  case  this  law  is  not  complied  with? 

5.  (a)   Under  the  Uniform  Negotiable  Instrument  Law  is  it  neces- 

sary to  give  an  endorser  notice  of  dishonor  or  non-payment 
of  a  note  in  order  to  hold  him  liable? 

(b)  What  would  be  the  effect  upon  the  endorser's  liability  in 
case  such  notice  was  not  given? 

(c)  If  a  note  matured  on  Thursday,  June  I7th,  and  the  endorser 
lived  in  another  city,  when  should  the  notice  of  dishonor 
be  mailed  ? 

(d)  If  the  note  by  its  terms  was  payable  Saturday,  June  iQth, 
and  the  endorser  lived  in  another  city,  when  should  the 
notice  of  dishonor  be  mailed  ? 


94  MICHIGAN  C.  P.  A.  MANUAL 

(e)  If  the  notice  of  dishonor  was  enclosed  in  a  sealed  envelope 
properly  stamped  and  addressed,  and  at  the  proper  time 
placed  in  a  United  States  mail  box  but  was  lost  by  the  mail 
carrier  who  collected  the  mail,  would  this  constitute  legal 
notice  so  as  to  hold  the  endorser  liable? 

6.  (a)   If  a  promissory  note  in  Michigan  specified  that  it  shall  draw 

interest  but  does  not  specify  the  rate,  what  rate  of  interest 
should  be  computed  on  the  note  ? 

(b)  What  is  the  maximum  rate  of  interest  which  can  be  pro- 
vided for  by  contract  in  Michigan  ? 

(c)  In  case  a  note  or  other  instrument  provides  for  usurious 
interest,  what  are  the  rights  of  the  maker  and  payee  and 
what  amount,  if  anything,  can  the  holder  recover  on  the 
contract  ? 

7.  (a)   Is  a  note  or  contract  signed  on  Sunday  valid?  Give  reasons. 

(b)  If  a  note  is  dated  Sunday,  June  I3th,  1915,  but  was  actu- 
ally signed  and  delivered  and  the  entire  agreement  made  on 
Monday,  June  I4th,  is  the  note  valid? 

(c)  Is  a  note  or  other  contract  signed,  dated  and  delivered  on 
a  legal  holiday  valid  ? 

8.  (a)   Can  a  person  who  purchases   for  value  before  maturity 

and  without  notice,  a  promissory  note,  enforce  payment 
against  a  party  whose  name  appears  upon  the  note  as  maker 
but  whose  signature  is  a  forgery? 

(b)  Does  the  law  require  the  holder  of  commercial  paper  to 
know  at  his  peril  that  the  signatures  of  the  makers  and 
endorsers  are  genuine? 

(c)  Give  your  reasons  why  your  answer  to  sub-division   (b) 
should  bs  and  is  the  law. 

9.  (a)   If  you  were  auditing  the  books  of  a  company  and  you  found 

that  they  were  extending  credit  to  their  customers  and 
taking  security  in  the  form  of  a  bill  of  sale  of  personal 
property,  what  recommendation,  if  any,  would  you  make 
in  your  report  as  to  the  validity  and  wisdom  of  this  form 
of  security,  and  what  would  you  recommend  as  a  substi- 
tute and  why  ? 

(b)  Under  the  same  circumstances,  if  you  found  they  were 
taking  as  security  a  deed  of  real  estate,  what  recommenda- 
tion, if  any,  would  you  make  in  your  report  as  to  the  validity 
and  wisdom  of  this  form  of  security  and  what  would  you 
recommend  as  a  substitute  and  why? 


MICHIGAN  C.  P.  A.  MANUAL  95 

10.  (a)    Is  the  following  instrument  a  negotiable  promissory  note? 

$1,000.00  Detroit,  Mich.,  June  14,  1915. 

Ninety  days  after  date  I  promise  to  pay  to  John  Smith  One 
Thousand  Dollars  with  interest  at  seven  per  cent  per  an- 
num. Value  received.  RICHARD  ROE. 
(b)  If  John  Smith  sells  the  above  instrument  in  due  course  can 
the  holder  compel  payment  against  Smith  as  endorser  in 
case  it  is  not  paid  by  the  principal?  Give  reasons. 

11.  (a)   If  a  creditor  accepts  payment  from  a  debtor  giving  a  re- 

ceipt in  full  and  later  discovers  that  he  overlooked  an  item 
which  the  debtor  was  owing  him,  can  he  still  legally  insist 
upon  payment  of  the  omitted  item? 

(b)   Under  what  circumstances  can  a   receipt  in   full  be  con- 
tradicted? 

12.  (a)   What  do  you  understand  by  the  Statute  of  Frauds  as  ap- 

plied to  the  sale  of  personal  property  in  Michigan? 

(b)  Under  the  Statute  of  Frauds  in  Michigan  if  Jones  agreed 
to  sell  Smith  a  horse  for  $90.00,  the  agreement  being  oral 
and  there  being  no  part  payment  and  no  delivery,  is  the 
contract  valid  ? 

(c)  Under  the  same  conditions  what  would  be  the  status  of  this 
contract  if  the  purchase  price  was  $110.00? 

13.  (a)   What  is  the  purpose  of  the  Federal  Bankruptcy  Law? 

(b)   Name  some  of  the  debts  which  are  not  dischargeable  in 
bankruptcy  ? 

14.  (a)   What  are  the  main  differences  between  a  corporation  and 

a  co-partnership? 

(b)   What  legal  effect  does  the  death  of  a  co-partner  have  on 
the  life  of  a  co-partnership? 

15.  (a)   Jones  and  Smith  associate  themselves  together  in  business 

under  the  name  of  the  Michigan  Real  Estate  Company,  but 
fail  to  file  the  necessary  certificate  with  the  county  clerk ; 
what  effect  does  this  omission  have  upon  the  validity  of 
contracts  entered  into  by  them? 

(b)  Is  it  necessary  at  the  present  time  for  all  co-partnerships 
to  file  certificates  with  the  county  clerk  of  the  county  where- 
in they  are  transacting  business  ? 

(c)  What  is  the  purpose  of  this  law? 


96  MICHIGAN  C.  P.  A.  MANUAL 

16.  (a)   Under  the  Michigan  Mortgage  Tax  Law  what  tax  would 

the  mortgagee  be  required  to  pay  on  a  mortgage  of  $460.00? 
(b)  Is  this  tax  required  to  be  paid  annually,  or,  is  it  only  re- 
quired to  be  paid  once  and  at  the  time  of  the  recording  of 
the  mortgage,  regardless  of  how  many  years  the  mort- 
gage runs? 

17.  (a)   What  do  you  understand  by  the  so-called  "Blue  Sky  Law?" 
(b)   What  is  the  purpose  of  such  laws? 

18.  (a)   Name  some  of  the  instruments  upon  which  a  revenue  stamp 

must  be  affixed  under  the  Revenue  Tax  Law  which  became 
effective  December  i,  1914. 

(b)  What  tax,  if  any,  would  be  imposed  under  this  law  on  a 
renewal  note  of  $250.00? 

(c)  A  chattel  mortgage  is  given  to  secure  the  payment  of  a  note 
of  $1,500.00;  what  stamp  tax,  if  any,  is  required  on  the 
note  and  mortgage  ? 

19.  (a)   Does  the  Revenue  Tax  Law  which  became  effective  Decem- 

ber i,  1914,  supersede  the  Income  Tax  Law  which  was  en- 
acted by  Congress  during  the  year  1913? 

(b)  Under  the  Income  Tax  Law  what  must  a  corporation  pay 
the  Federal  Government  on  a  net  income  of  $10,000.00  per 
year? 

(c)  What  tax  must  a  married  man  pay  on  a  net  income  of 
$5,000.00  per  year? 

(d)  What  tax  must  an  unmarried  man  pay  on  a  net  income  of 
$5,000.00  per  year? 

20.  (a)   If  you  were  auditing  the  books  of  a  mercantile  institution 

and  you  found  that  they  were  taking  notes  which  provided 
that  payment  was  to  be  made  out  of  a  particular  fund,  what 
recommendation,  if  any,  would  you  make  in  your  report? 
(b)  If  you  were  auditing  the  books  of  a  company  and  you 
found  an  employee  had  embezzled  funds  of  the  company 
and  he  promised  his  employers  to  make  restitution  if  he 
was  not  criminally  prosecuted,  would  you  recommend  the 
acceptance  of  this  promise? 


PRACTICAL  ACCOUNTING 


MICHIGAN  C.  P.  A.  MANUAL 


99 


MICHIGAN  STATE  BOARD  OF  ACCOUNTANCY 


EXAMINATION 
for  the  degree  of 

CERTIFIED  PUBLIC  ACCOUNTANT 
July  27-28,  1906 


PRACTICAL  ACCOUNTING 


Friday,  July  27,  1906,  from  1:30  P.  M.  to  6:00  P.  M. 


75  credits  necessary  to  pass,  out  of  a  possible  100  credits. 
Each  complete  answer  will  receive  16  2-3  credits.  Do  not  repeat 
questions  on  examination  papers  but  write  answers  only,  designating 
the  questions  by  number.  The  intelligence  indicated  by  answers  will 
be  considered  in  marking  the  applicants,  as  well  as  the  technical 
accuracy  of  such  answers. 


I.  A  corporation  is  organized  under  the  laws  of  the  State  of 
^Michigan,  with  Capital  Stock  $250,000.00,  of  which  $100,000.00 
is  preferred  and  $150,000.00  is  common  stock,  shares  $100.00 
each.  The  purchasers  of  preferred  stock  at  par  are  to  receive 
an  equal  amount  of  common  stock  free,  all  the  preferred  stock 
is  subscribed  and  paid  for,  leaving  $50,000.00  of  common  stock 
unsubscribed.  It  is  found  that  the  remaining  common  stock 
cannot  be  sold  for  sufficient  cash  for  requirements  and  the 
holders  of  preferred  stock  donate  to  the  Treasury  $50,000.00 
of  their  common  stock.  The  common  stock  is  sold  at  5oc  on  the 
dollar.  Provide  journal  entries  covering  the  above. 


100 


MICHIGAN  C.  P.  A.  MANUAL 


2.    A  Gas  Company  shows  the  following  Trial  Balance  at  the  end 
of  its  first  year  of  business : 


Manufacturing  labor  .  .  .$        5,400.00 

Boiler  fuel 3,200.00 

Generator  fuel 5,400.00 

Oil 126,000.00 

Purifiers 3,200.00 

Repairs,  works 2,600.00 

Water 1,500.00 

Expense,  works  3,900.00 

Insurance 300.00 

Taxes  4,800.00 

Distribution     labor     and 

material 12,000.00 

Office  expense   13,500.00 

Stable  expense 4,000.00 

Repairs,  mains  1,800.00 

Repairs,  meters  600.00 

Repairs,  services  700.00 

Street  lighting  300.00 

Advertising 300.00 

Maintenance  arc  lamps. .  1,500.00 

Licenses  1,000.00 

Discounts 34,000.00 

General  expenses 5,000.00 

Sundry  debtors,  Gas   . . .  40,000.00 

Sundry  debtors,   Mdse..  10,000.00 

Cash  29,000.00 

Bond  interest 25,000.00 

Plant 1,055,600.00 


$  1,390,600.00 


Capital  stock 

Bonds  

Accounts  payable 
Gas  accounts  . , 


500,000.00 

500,000.00 

48,000.00 

342,600.00 


$  1,390,600.00 


The  inventory  of  manufacturing  material  is $20,000.00 

The  inventory  of  distribution  material  is 4,000.00 

No  other  inventories  of  any  description  are  carried. 
The  amount  of  gas  manufactured  during  the  year  was  300,000,- 
ooo  cubic  feet.     Amount  sold,  270,000.000  cubic  feet.     Unac- 
counted for,  30,000,000  cubic  feet. 

Give:   ist.  The  Manufacturing  Cost  of  Gas  sold. 
2nd.  The  Distribution  Cost  of  Gas  sold. 
3rd.  Prepare  Statement  of  Operations  of  the  Company 
and  Balance  Sheet  of  Assets  and  Liabilities. 


MICHIGAN  C.  P.  A. 


101 


Following  is  a  list  of  the  accounts  appearing'  onj  thej  mar  -bal- 
ance of  a  manufacturing  company  which  deals  in  finished  mer- 
chandise purchased  as  well  as  in  its  own  products.  From 
this  list,  and  without  using  figures,  draw  up  plans  of  financial 
statements  (balance  sheet,  manufacturing  account,  profit  and 
loss  account,  etc.),  in  the  form  which  you  think  most  suitable. 


Accounts  Payable 

Salaries,  Management 

Capital  Stock 

Bills  Receivable 

Cash 

Bills  Payable 

Salaries,  Office  and  Store 

Real  Estate 

Fuel 

Insurance  (Plant) 

Light 

Freight   (on  Mdse.  Purchased) 

Machinery   and   Tools 

Freight    (on  Raw  Materials) 

Buildings 

Sales    (Own  Product) 

Inventory,  Own  Products 

Inventory,  Raw  Materials 

Inventory,   Partly  Manufactured 

Goods 

Inventory,  Mdse.  Purchased 
Inventory,  Repair  Supplies 
Sales   (Merchandise  Purchased) 
Undivided  Profits  (  end  of  last  year) 
Purchases,   (Merchandise) 
Rent,  Factory 


Printing  and  Stationery 
Accounts  Receivable 
Advertising 

Purchases  (Raw  Materials) 
Machinery  Repairs 
Productive  Labor  (Factory) 
Labor  (Warehouse) 
Office  Furniture 

Reserve   for  Bad  and  Doubtful  Ac- 
counts 

Reserve  for  Depreciation 
Insurance    (Merchandise) 
Bad  and  Doubtful  Accounts 
Travellers'  Expenses  and  Salaries 
Management  Salary,  Factory 
Management   Salary,   Office 
Discounts  Allowed 
Interest  Payable 
Depreciation 

Sundry  Factory  Expenses 
Sundry  Office  Expenses 
Postage 

Subscriptions  and  Donations 
Discounts  Received 
Rents  (Receivable) 
Insurance  unexpired,  Plant 
Insurance  unexpired,  Merchandise 


Rent,  Store  and  Office 
4.  A  corporation  organizes  under  the  laws  of  Michigan  to  conduct 
a  manufacturing  business.  Authorized  capital  $400,000.00, 
half  each  common  and  preferred  stock,  shares  $100.00.  Five 
incorporators  subscribe  for  ten  shares  each  of  common  stock 
at  face  value.  John  Smith  purchases  from  three  manufacturing 
companies,  their  complete  plants  for  $395,000.00  and  transfers 
said  plants  to  the  incorporated  company  for  the  remaining 
$395,000.00  of  common  and  preferred  stock  and  $150,000.00  of 
first  mortgage  5%  bonds  out  of  a  total  issue  of  bonds  of  $200,- 
ooo.oo,  leaving  $50,000.00  of  bonds  in  the  treasury. 
Make  opening  journal  entries  and  trial  balance  showing  the 
company's  condition  after  the  transaction. 


I02  MICHIGAN  C.  P.  A.  MANUAL 

5.  A  manufacturer  is  desirous  of  securing  a  partner  and  furnishes 
a  statement  covering  five  years'  operations  as  follows : 

ASSETS 

Buildings  $  20,000.00 

Machinery  and  Fixtures    75,000.00 

Inventory,  Merchandise  and  Supplies    50,000.00 

Cash    5,000.00 

Accounts  Receivable  40,000.00 

LIABILITIES 
Accounts  and  Bills  Payable   $  30,000.00 

Sales  average  per  year  500,000.00 

Wages  paid  per  year 170,000.00 

Expense,  Selling  and  General,  per  year 35,000.00 

Material  purchased    260,000.00 

Buildings  are  on  leased  ground,  lease  expires  in  ten  years,  an- 
nual land  rental,  $1,000.00.  Buildings  revert  to  owner  at  ex- 
piration of  lease. 

New  machinery  when  installed  ten  years  ago  cost  $50,000.00. 
Additions  since  cost  $25,000.00.  No  depreciation  has  been 
charged  off.  All  repairs  and  replacements  charged  to  expense. 
What  in  your  opinion  would  be  a  fair  price  to  be  contributed 
for  a  half  interest?  Explain  fully. 

6.  A  and  B,  each  carrying  on  a  similar  business,  agree  to  form  a 
partnership,  the  new  firm  to  take  over  the  assets  and  assume 
the  liabilities  of  each.  The  following  trial  balances  representing 
the  book  accounts  were  presented : 

—  A  — 

Capital    $  40,000.00 

Machinery  and  Fixtures    $  30,000.00 

Cash  2,000.00 

Bills  Receivable 5,000.00 

Accounts  Receivable   30,000.00 

Inventory  Merchandise 25,000.00 

Wages   7,000.00 

Wages  due   250.00 

Expense  10,000.00 

Bills  Payable   10,000.00 

Merchandise  Account   40,000.00 

Accounts  Payable  20,000.00 

Repairs    i  ,250.00 


$110,250.00    $110,250.00 


MICH 1C.  IX  C.  I'.  ./.  MANUAL  103 

—  B- 

Capital    $  50,000.00 

Machinery  and  Fixtures   $  30,000.00 

Cash  '. 4,000.00 

Bills  Receivable 8,000.00 

Accounts  Receivable   40,000.00 

Wages  9,000.00 

Wages  due   500.00 

General  Expense    15,000.00 

Bills  Payable 15,000.00 

Merchandise  Account   50,000.00 

Inventory    32,000.00 

Repair  Account 2,500.00 

Accounts  Payable 25,000.00 


$140,500.00        $140,500.00 

Kuch  partner  is  to  draw  half  the  profits.  Formulate  opening 
entries  for  the  new  firm.  At  the  end  of  the  year  a  profit  is 
made  of  $30,000.00.  Create  a  Trial  Balance  and  Inventory, 
using  your  own  figures  to  produce  that  result ;  divide  the  profit 
between  the  partners  and  make  Statement  of  Assets  and 
Liabilities. 


PRACTICAL  ACCOUNTING 


Friday,  December  21,  1906,  from  1 130  P.  M.  to  6:00  P.  M. 


Answer  questions  2  and  3  and  two  of  the  others,  but  no  more. 
Answers  in  excess  of  the  number  required  will  not  be  considered. 

i.  The  products  of  a  manufacturing'  company  are  sold  by  a  selling 
agent  who  bears  all  the  expenses  of  selling.  He  receives  a 
commission  of  50^  of  the  amount  of  the  sale  to  customer.  He 
is  to  be  paid  weekly  his  commissions  on  all  settlements  of  ship- 
ments. 

A  patentee  is  also  to  be  paid  a  royalty  on  sales.  A  "stores"  ac- 
count is  kept,  also  a  factory  product  account  which  is.  credited 
monthly,  with  finished  product,  the  same  being  charged  to 
"stores"  account  at  factory  cost. 

What  accounts  should  appear  in  a  monthly  balance  sheet  to 
show  the  condition  of  the  business? 


104 


MICHIGAN  C.  P.  A.  MANUAL 


2.  Following  is  a  list  of  the  accounts  appearing  on  the  trial  bal- 
ance of  a  manufacturing  company  which  deals  in  finished  mer- 
chandise purchased,  as  well  as  in  its  own  products.  From  this 
list  and  without  using  figures,  draw  up  plans  of  financial  state- 
ments (balance  sheet,  manufacturing  account,  selling  account, 
profit  and  loss  account,  etc.),  in  the  form  which  you  think  most 
suitable. 


Treasury  Stock 

Bonds 

Sales  of  Old  Machinery 

Accounts  Payable 

Buildings 

Sales  (own  product) 

Bills  Payable 

Surplus 

Fuel 

Light 

Inventory,  Repair  Supplies 

Accounts  Receivable 

Salaries,  Management 

Cash 

Freight  (on  Raw  Materials) 

Bad  and  Doubtful  Accounts 

Machinery  Repairs 

Rent,   Factory 

Inventory,   Partly  Manufactured 

Goods 

Freight  (on  Mdse.  Purchased) 
Capital  Stock 
Real  Estate 
Machinery  and  Tools 
Sinking  Fund 
Rents  Received 
Interest  Payable 
Sundry  Office  Expenses 
Inventory,  own  product 
Bills  Receivable 
Insurance   (Plant) 


Undivided  Profits  (end  of  last  year) 

Printing  and  Stationery 

Subscriptions  and  Donations 

Management  Salary,  Office 

Office  Furniture 

Depreciation 

Advertising 

Inventory,  Raw  Materials 

Salaries,  Office 

Sales,  (Merchandise  Purchased) 

Management   Salary,   Factory 

Discounts  Received 

Reserve  for  Depreciation 

Salaries,  Store 

Rent,  Store 

Inventory,  Merchandise  Purchased 

Purchases    (Merchandise) 

Rent,  Office 

Labor   (Warehouse) 

Reserve  for  Bad  and  Doubtful 

Accounts 

Purchases  (Raw  Materials) 
Productive  Labor  (Factory) 
Insurance    (Merchandise) 
Travellers'    Expenses    and    Salaries 
Discounts  allowed 
Sundry  Office  Expenses 
Postage 

Insurance  unexpired,   Plant 
Insurance  unexpired,  Merchandise 


3.  The  following  is  a  Trial  Balance  taken  from  the  books  of  a 
Health  and  Accident  Insurance  Company  for  year  ending  June 
30th : 

DEBITS 

Cash    $    4,000.00 

Securities — Mortgages   100,000.00 

Bills  Receivable 2,500.00 


MICHIGAN  C.  P.  A.  MANUAL 

Stocks  and  Bonds   50,000.00 

Bank,  current  account    4,000.00 

Bank,  certificates  of  deposit  5,000.00 

Dividends   10,000.00 

Profit  and  Loss  Account  20,000.00 

General  Expense 1,000.00 

Home  treatment,  Indemnity  35,000.00 

Interest  earned   4,000.00 

Due  from  Sundry  Agents   8,000.00 

Re-Insurance  Account   900.00 

Accounts  Receivable   60,000.00 

Furniture  and  Fixtures   1,000.00 

Hospital  Bldg.  and  Equipment 50,000.00 

Hospital  expense    10,000.00 

Advertising,  Printing,  Etc 2,000.00 

Agents  Salaries  and  Expenses  1,500.00 

Agents    Commissions    12,000.00 

Salaries,  Officers  and  Employees   6,000.00 

Insurance  Commissioner's  fees  and  taxes  3,000.00 

Postage  and  expense 100.00 

Cancellations    20,000.00 


105 


$410,000.00 

CREDITS 

Capital  Stock  $200,000.00 

Surplus 40,000.00 

Interest  on  Stocks,  Bonds  and  Mortgages  3,000.00 

Due  Sundry  Agents 2,000.00 

Commissions,  Re-Insurance   500.00 

Accounts    Payable    2,000.00 

Premium  Account   (one  year)    160,000.00 

Contract  Earnings  on  Medical  Supplies  2,500.00 


$410,000.00 

This  Company  is  subject  to  a  general  insurance  law  requiring 
50%  of  Premiums  to  be  set  aside  as  a  reserve  for  re-insurance. 
In  addition  to  items  included  in  Trial  Balance  there  is  a  list  of 
claims  in  course  of  adjustment  amounting  to  $5,000.00,  also 
claims -which  were  paid  in  July  on  notices  received  prior  to 
July  ist  of  $3,000.00.  There  were  worthless  items  carried  as 
cash  to  the  amount  of  $1,000.00.  There  were  also  liabilities  in- 
curred but  not  entered  on  the  books  prior  to  July  ist  as  follows: 

Sundry  Expense  amount  items $   200.00 

Salaries  earned 1,000.00 


106  MICHIGAN  C.  P.  A.  MANUAL 

Yearly  premiums  are  payable  in  five  installments.  Agents  are 
paid  by  commissions,  a  stated  %  when  business  is  secured  and 
a  final  commission  of  20%  when  premiums  fully  paid.  Only 
paid  commissions  are  considered  in  trial  balance.  Accounts 
receivable  in  trial  balance  represents  unpaid  premiums.  Make 
statements  as  of  June  3Oth  of  loss  and  gain  and  assets  and 
liabilities. 

4.  Promoters  agree  in  consideration  of  receiving  the  entire  Stock 
of  Corporation  to  furnish  a  complete  plant  with  a  specified  pro- 
duction and  also  to  furnish  $50,000.00  as  working  capital.    The 
Corporation  is  organized  under  the  laws  of  an  Eastern  State 
with : 

Preferred    Stock    $i,ooo,ooq.oo 

Common    Stock 2,000,000.00 

The  promoters  fulfill  their  contract  furnishing  the  plant  and 
$50,000.00  working  capital.  The  plant  is  located  in  a  state 
which  limits  incorporation  under  its  own  laws  to  $10,000.00. 
It  is  deemed  advisable  to  organize  the  operating  company  under 
the  local  laws,  the  original  company  assuming  the  position  of 
parent  company.  The  local  organization  is  completed,  sub- 
scriptions being  as  follows : 

Parent  Company   93  shares 

Individuals    7  shares 

The  entire  plant  and  working  capital  is  turned  over  to  the 
local  company  for  operation.  It  is  known  that  the  promoters 
sold  the  $1,000,000.00  of  preferred  shares  at  par  and  gave 
an  equal  number  of  common  shares  as  a  bonus.  The  promoters 
did  not  furnish  figures  of  cost  of  construction  but  an  appraisal 
fixes  the  value  of  land,  building  and  machinery  at  $1,000,000.00. 
The  net  earnings  (after  depreciation)  are  to  be  disposed  of  as 
follows : 

10%  to  the  Local  Company 

90%  to  the  Parent  Company 

State  opening  entries  for  the  parent  company  and  for  the 
operating  company,  also  entries  on  both  sets  of  books  showing 
the  disposition  of  profits. 

5.  A  Municipal  Comptroller  had  upon  his  books  at  the  beginning 
of  his  fiscal  year  the  following  Bonds  outstanding  of  $500,- 
ooo.oo  as  follows : 

Improvement  Bonds    $100,000.00 

Building  "         300,000.00 

Refunding  " 100,000.00 


MICHIGAN  C.  P.  A.  MANUAL  .  107 

Cash  in  the  hands  of  the  Treasurer  $100,000.00. 

Credit  Balances  to  the  following  funds: 

a $  25,000.00 

b 10,000.00 

c 15,000.00 

d 30,000.00 

e 20,000.00 

The  earnings  of  the  municipality  for  the  ensuing  year  and  the 
amounts  necessary  to  be  raised  by  taxation  were  estimated  as 
follows : 

Earnings  from  various  departments   $200,000.00 

Liquor   Licenses    500,000.00 

Taxes    300,000.00 

The  earnings  from  various  departments  and  liquor  licenses  are 
placed  in  Fund  a.  Taxes  are  divided  among  the  funds  as  fol- 
lows: b.  30%,  c.  20%,  d.  15%,  e.  35%. 

At  the  close  of  the  fiscal  year  the   following  collections  had 

been  received : 

Earnings  from  various  departments   $175,000.00 

Liquor  Licenses 490,000.00 

Taxes   250,000.00 

Make  the  necessary  entries  in  full  and  present  a  balance  sheet 
at  the  beginning  and  close  of  the  fiscal  year. 

6.  Under  the  laws  of  Michigan  a  Building  and  Loan  Association 
has  been  incorporated  with  an  authorized  capital  of  $1,000,- 
ooo.oo.  Stock  divided  into  two  classes,  installment  and  full  paid 
stock  par  value  of  each  $100.00  per  share.  Installment  Stock  to 
be  paid  for  at  the  rate  of  sixty  cents  per  share  per  month,  of 
which  ten  cents  per  share  may  be  devoted  to  operating  expenses, 
etc.  No  part  of  the  profits  can  be  used  for  expenses  of  the 
association.  Estimated  time  of  the  maturity  of  the  installment 
stock  based  on  the  earning  power  of  the  loaning  feature  of  the 
association  is  no  months.  The  nine  directors  decide  to  ad- 
vance $1,000.00  each  to  meet  the  expenses  and  develop  the  busi- 
ness and  the  ten  per  cent  of  the  expense  deductions  is  to  be  set 
apart  each  year  for  the  repayment  of  this  nine  thousand  dollars. 

The  Secretary  reports  the  sale  of  1,000  shares  of  installment 
stock  on  which  the  first  month's  payment  of  sixty  cents  has  been 
made.  He  also  reports  the  sale  of  500  shares  of  full  paid  stock 
for  which  he  received  the  money. 

•Give  the  proper  books  for  conducting  the  business  of  this  asso- 
ciation and  for  keeping  its  accounts  and  make  the  opening 
entries. 


I08  MICHIGAN  C.  P.  A.  MANUAL 

PRACTICAL  ACCOUNTING 


Friday,  November  i,  1907,  from  1 130  P.  M.  to  6:00  P.  M. 


Answer  questions  I  and  3  and  two  of  the  others,  but  no  more. 
Answers  in  excess  of  the  numbers  required  will  not  be  considered. 


It  is  desired  to  effect  a  consolidation  of  two  manufacturing- 
corporations  in  the  same  line  of  business,  having  the  same 
amount  of  capital  stock,  and  doing  practically  the  same  gross 
business  per  year. 

The  intention  of  the  merger  is  to  form  a  new  corporation  with 
the  combined  capital  of  the  two  corporations,  including  the  sur- 
plus of  each  corporation,  but  on  account  of  the  much  larger 
profit  of  one  of  the  corporations,  owing  to  better  machinery, 
etc.,  the  stockholders  of  that  corporation  are  to  receive  25% 
more  of  the  stock  of  the  new  corporation  than  the  other  merged 
corporation.  The  new  corporation  to  take  over  all  the  assets 
and  assume  all  of  the  liabilities  of  the  two  corporations,  as  stated 
on  their  books. 

Make  out  a  balance  sheet  of  the  assets  and  liabilities  of  each  of 
the  two  corporations  proposed  to  be  merged,  supplying  your  own 
figures  covering  all  the  usual  items  found  in  a  manufacturing 
business.  Close  the  books  of  each  of  the  old  corporations  and 
open  the  books  of  the  new  corporation,  covering  the  legal  re- 
quirements of  such  merger,  in  accordance  with  the  laws  of  Mich- 
igan, both  as  to  the  minutes  of  the  old  and  new  corporations  and 
necessary  payment  to  the  State. 

A  corporation  agrees  to  purchase  from  a  firm  of  four  partners 
their  business.  Their  assets  and  liabilities  were  as  follows : 
buildings,  $100,000.00;  machinery,  $38,335.00;  stock,  $105,- 
940.00;  accounts  receivible,  $278,680.00;  bills  receivable,  $37,- 
005.00;  cash,  $17,030.00;  horses  and  wagons,  $1,230.00;  un- 
expired  insurance,  $175.00;  accounts  payable,  $84,065.00. 

Capital  of  each  of  the  four  partners : 

A,  $125,500.00;  B,  $103,500.00;  C,  $133,000.00;  D,  $132,330.00. 
It  was  further  agreed  that  the  partners  were  to  be  paid  for 
good  will,  based  on  a  year  and  a  quarter  purchase  of  the  last 
three  years'  profit  which  were  respectively  $34,150.00,  $35,- 
250.00  and  $45,450.00. 

Prepare  a  balance  sheet  bringing  in  the  good  will  and  distribut- 
ing it  equally  among  the  four. 


MICHIGAN  C.  P.  A.  MANUAL  109 

3.    A  is  a  manufacturer  of  furniture,  and  his  balance  sheet  at  a 
certain  date  shows  as  follows : 

Cash  in  the  bank,  $500.00;  real  estate,  $20,000.00;  machinery, 
after  10%  depreciation,  $40,000.00;  accounts  receivable,  $7,- 
542.50;  stock  on  hand  finished,  $10,000.00;  stock  in  process  of 
construction,  $1,000.00;  raw  material,  $957.50;  bills  payable. 
$20,000.00;  accounts  payable,  $30,000.00. 

He  agrees  with  B  to  sell  him  one-half  interest  in  the  business 
for  the  sum  of  twenty  thousand  dollars  to  be  contributed  to 
the  new  firm,  the  new  firm  to  take  the  assets  of  A  with  the 
exception  of  the  real  estate  and  assume  all  of  the  liabilities, 
and  that  the  good  will  of  the  business  of  A  should  be  rated  at 
$20,060.00  in  the  new  firm's  books.  It  was  discovered  shortly 
after  the  commencement  of  business  of  the  new  firm,  that  the 
inventory  of  finished  stock  was  incorrect  and  that  the  value 
should  have  been  entered  at  $8,000.00  and  that  of  the  accounts 
receivable  $6,500.00  were  collectable,  one  of  the  debtors  owing 
$500.00  having  failed  leaving  no  assets,  previous  to  the  forma- 
tion of  the  co-partnership,  which  fact  was  known  to  A  but  his 
bookkeeper,  who  had  been  instructed  to  charge  off  the  account, 
failed  to  do  so. 

The  trial  balance  at  the  end  of  the  year's  business  showed  as 
follows : 

A.  Capital  Account   $  25,000.00 

B.  Capital  Account    25,000.00 

Merchandise    75,000.00 

Accounts  payable   40,000.00 

Accounts   receivable    10,000.00 

Machinery  40,000.00 

Factory    wages    35,000.00 

Non-productive  labor   5,000.00 

General  factory  expense   20,000.00 

Rent    1,500.00 

A.  Personal  Account    2,500.00 

B.  Personal   Account    2,500.00 

General  expense   .* 2,000.00 

Good-will   20,000.00 

Cash    26,000.00 

Profit  and  Loss 500.00 


$165,000.00        $165,000.00 


1IO  MICHIGAN  C.  P.  A.  MANUAL 

Inventories  at  close  of  year : 

Stock  on  hand  finished $  25,000.00 

Stock  on  hand  in  process  of   construction    2,500.00 

Raw    material    2,500.00 


$  30,000.00 

No  correction  was  made  of  the  discrepancies  and  no  amount  has 
been  charged  off  for  depreciation  of  machinery,  which  should 
be  10%. 

Make  proper  entries  to  correct  books,  with  reasons  for  such 
entries  in  full,  also  formulate  balance  sheet  showing  the  stand- 
ing of  the  firm. 

You  are  an  auditor  engaged  by  a  corporation  to  audit  their  ac- 
counts. At  the  beginning  of  the  period  you  are  to  cover,  the 
following  statement  is  drawn  .from  the  books : 

Capital    $IOO,OOO.CXD 

Surplus 1,000.00 

Accounts  receivable  $  10,000.00 

Buildings  after  deducting  $5,000... 

for  depreciation    35,000.00 

Machinery     after     deducting  $5,000 

for  depreciation    55,000.00 

Cash    500.00 

Stock  on  hand  .  500.00 


$101,000.00        $101,000.00 

During  the  period  which  you  are  auditing,  you  find  buildings 

and  machinery  charged  with  $10,000.00  which  was  to  cancel  the 

entries  of  depreciation. 

Capital  stock  increased  $10,000.00  and  a  stock  dividend  paid 

of  $10,000.00. 

These  entries  were  authorized  according  to  the  minute  book, 

but  not  entered  correctly  in  the  general  books.     Make  report 

of  the  above  transaction  and  formulate  the  necessary  entries  for 

the  bookkeeper. 


MICHIGAN  C.  P.  A.  MANUAL  m 

5.  The  administrator  of  a  will  received  $50,000.00  in  cash  to  be 
distributed  among  the  heirs  and  legatees  under  the  terms  of  the 
will,  as  follows : 

Alice,  a  daughter  of  the  deceased,  after  payment  of  the  legacies, 
including  a  legacy  of  $1,000.00  to  herself,  was  to  receive  one- 
fifth  of  the  residue  of  the  estate. 

Ann,  a  daughter  of  the  deceased,  after  payment  of  the  legacies, 
was  to  receive  one-fifth  of  the  residue  of  the  estate. 

Mary,  a  daughter  of  the  deceased,  was  to  receive  the  same  as 
Ann. 

George,  a  son,  after  payment  of  the  legacies,  including  a  legacy 
of  $500.00  for  himself,  was  to  receive  one-fifth  of  the  residue 
of  the  estate. 

Three  children  of  a '  deceased  son,  Joseph,  were  to  receive 
legacies  of  $500.00  each. 

John,  a  son,  was  to  receive  one-fifth  interest  in  the  residue  of 
the  estate  subject  to  payment  of  the  legacies  as  mentioned,  and 
also  subject  to  legacies  of  $3,000.00  each  to  his  wife  and  three 
children. 

The  administrator  carried  out  the  terms  of  the  will. 

Open  the  books  of  the  administrator,  showing  receipts  of  the 
funds,  their  proper  distribution,  payment  and  closing  entries. 

6.  A  corporation  is  organized  under  the  laws  of  the  State  of  Mich- 
igan, with  a  capital  of  $1,000,000.00  in  100,000  shares  at  $10.00 
each,   50,000  shares  of  which  are  common  stock  and   50,000 
shares  preferred  stock.     20,000  shares  of  the  preferred  stock 
have  been  sold  at  par,  on  which  an  assessment  of  $5.00  per 
share  has  been  paid. 

Subsequently  it  was  determined  by  the  stockholders  to  donate 
one  share  of  the  common  stock  of  the  company  to  the  purchaser 
of  each  share  of  the  preferred  stock,  the  original  subscribers 
to  the  20,000  shares  on  which  an  installment  of  $5.00  per  share 
was  paid,  to  receive  the  benefit  of  such  offer  upon  the  payment 
of  the  balance  of  their  subscription.  The  effect  of  this  offer 
was  that  all  the  preferred  stock  was  sold  and  the  balance  of  the 
installment  due  was  also  paid. 

Give  entries  for  all  the  above,  placing  the  transactions  at  inter- 
vals of  one  month. 


112  MICHIGAN  C.  P.  A.  MANUAL 


PRACTICAL  ACCOUNTING 


Saturday,  June  27,  1908,  1 130  P.  M.  to  6 130  P.  M. 


i.  The  following  figures  are  taken  from  the  books  of  the  Fairview 
'Manufacturing  Company  of  Mew  York  City,  on  the  3ist  day 
of  December,  1907: 

Inventory  of  Finished  Goods  (Jan.  i)    $    3,684.57 

Inventory  of  Raw  Materials   (Jan.  i)    11,392.70 

Purchases  of  Raw  Materials   62,519.85 

Sales 217,387.42 

Wages    109,317.88 

Rent  19,500.00 

Discounts  received  on  purchases 375-6o 

Discounts  allowed  on  Sales   186.36 

Power,  Light  and  Heat  8,710.64 

Light  and  Heat  for  Office 168.00 

Repairs    1,090.00 

Packing 2,017.00 

Factory  Expense 3,270.00 

General  Expense 5,230.00 

Factory  Insurance   1,050.00 

General  Insurance   750.00 

Machinery  and  Plant 12,350.00 

Tools    2,600.00 

Commissions   7.642.00 

Office,   Salaries    9,700.00 

Salesmen,    Salaries    8,930.00 

Interest  on  Loans    440.00 

Loans  Payable 22,000.00 

Discount  Lost   120.00 

Notes  Receivable   130,000.00 

Notes  Receivable  Discounted  8,000.00 

Notes  Payable  19,500.00 

Accounts  Receivable   101,026.00 

Accounts  Payable 30,020.00 

Office  Furniture    1,100.00 

Furniture  and  Fixtures   1,950.00 

Cash  on  hand    1,825.00 

Cash  in  Banks  26,467.00 

Returned  Sales   276.00 

Capital 200,000.00 

Reserve  for  Depreciation 3,236.98  - 


MICHIGAN  C.  P.  A.  MANUAL  113 

Reserve  for  Bad  Debts 5,727-oo 

Freight  and  Cartage  Inward   727.00 

Stable  Expenses   2,750.00 

Horses,  Wagons  and  Harnesses  8,500.00 

Postage  and  Expressage   1,250.00 

Superintendence    3,500.00 

Taxes    250.00 

Good-will   . . 10,000.00 

Stationery  and  Printing 1,080.00 

Advertising 8,630.00 

Surplus   ( 1906)    63,753.00 

You  are  requested : 

(a)  To  prepare  from  them  a  Trial  Balance,  arranged  in  sys- 
tematic order  as  to  Balance  Sheet  Accounts,  Assets  and 
Liabilities,  Loss  and  Gain  accounts,  Expenses  and  Reve- 
nues, the  Expenses  divided  between  Commercial  and  Man- 
ufacturing, so  as  to  facilitate  the  preparation  of  financial 
or  business  statements. 

(b)  To  draft  journal  entries  for  closing  the  books. 

(c)  To  prepare  Manufacturing,  Trading,  and  Profit  and  Loss 
accounts. 

(d)  To  verify  your  results  shown  in  (c)  by  a  Balance  Sheet. 
The  following  items  are  to  be  taken  into  consideration  before 
preparing  the  statements  asked  for: 

Inventories : 

Raw  material $16,250.00 

Finished  Goods  9,386.00 

Tools   2,000.00 

Office  Furniture    1,000.00 

Furniture  and  Fixtures 1,500.00 

Stationery  and  Printing 300.00 

Allow  for  depreciation : 

On  Machinery  and  Plant,  5% 

On  Horses,  Wagons  and  Harnesses,   10% 

Reserve  for  Bad  Debts,  3%  on  Accounts  Receivable  only. 

The  item  of  Rent  $19,500  is  to  be  apportioned  as  follows : 
53%  for  Factory. 
22%  for  Salesrooms. 
25%  for  Office. 

The  item  of  superintendence,  $3,500,  is  to  be  divided  3-5  to 
factory,  and  2-5  to  general  expense. 


[I4  MICHIGAN  C.  P.  A.  MANUAL 

2.  The  Western  Grain  Company  has  this  day  been  incorporated, 
under  the  laws  of  this  state,  by  the  following  incorporators, 
C.  H.  Benton,  J.  W.  Walters,  F.  Rowland  and  A.  B.  Miller, 
all  of  this  city,  with  an  authorized  capital  of  $25,000.00,  divided 
into  250  shares  of  $100.00  each. 

The  purpose  of  this  corporation  is  to  buy  and  sell  all  kinds 
of  grain  and  the  subscriptions  to  the  stock  of  the  company  are 
as  follows : 

C.  H.  Benton,  60  shares;  J.  W.  Walters,  60  shares;  F.  Rowland, 
100  shares;  and  A.  B.  Miller,  30  shares. 

Pursuant  to  an  arrangement  between  the  firms  of  Benton  & 
Walters  and  F.  Rowland,  and  the  Western  Grain  Company,  the 
former  two  individual  concerns  agree  to  sell  to  the  latter  all  their 
assets  consisting  of  stock  of  merchandise,  real  estate,  accounts 
and  notes  receivable,  good  will,  etc.,  etc.,  in  consideration  of  the 
assumption  by  the  Western  Grain  Co.,  of  all  the  liabilities  of  the 
two  individual  concerns  as  well  as  for  the  payment  in  capital 
stock  of  the  Company  for  the  balance  which  the  assets  may 
exceed  the  liabilities.  The  balance  sheet  of  each  individual  con- 
cern, which  is  taken  as  exhibiting  the  exact  value  of  each  plant 
is  as  follows : 


BENTON  &  WALTER'S  BALANCE-SHEET 


Cash .$  2,300.00 

Notes 

Receivable   $2,300.00 

Accounts 

Receivable  8,600.00  10,900.00 

Furniture  and  Fixtures ....        200.00 

Unexpired  Insurance 68.75 

Merchandise  (Inv.)   931.25 


Notes  Payable $4,160.33 

Accts.  Payable. . . .      839.67  $  5,000.00 

Notes  Rec.  Dis 1,300.00 

C.  H.  Benton 4,000.00 

J.  W.  Walters 4,100.00 


$14,400.00 


F.  ROWLAND'S  BALANCE-SHEET 


$14,400.00 


Real  Estate $  5,159.00 

Furniture  and  Fixtures  ....        495-00 

Merchandise  (Inv.)   1,196.00 

Notes  Rec $   800.00 

Accts.  Rec 1,350.00    2,150.00 

Cash  3,200.00 


Notes  Payable $1,250.00 

Accts.  Payable  ...   1.750.00  $  3,000.00 
F.  Rowland 9,200.00 


$12,200.00 


$12,200.00 


MICHIGAN  C.  P.  A.  MANUAL  1 15 

The  Good  Will  of  Benton  and  Walters  is  valued  at  $1,500.00, 
while  that  of  F.  Rowland  is  valued  at  $2,000.00. 
To   enable   the   corporation   to   carry   out   this   agreement   the 
original   subscriptions   of   Benton,   Walters   and   Rowland   are 
therefore  amended  as  follows: 

C.  H.  Benton  subscribing  20  shares,  Walters  20  shares,  and 
Rowland  27  shares.  A.  B.  Miller  pays  in  cash  for  his  subscrip- 
tion and  Benton,  Walters  and  Rowland  each  donate  5  shares  of 
.  the  capital  stock  of  the  company  to  provide  a  Reserve  for  Con- 
tingencies. 

Draft  the  necessary  journal  entries  for  the  opening  of  the  cor- 
poration books  and  all  the  other  facts  mentioned  above  and 
create  the  ledger  accounts. 

3.  A.  Wells,  a  manufacturer  of  novelties,  is  joined  by  I.  M. 
Anxious  in  partnership  upon  the  following  terms : 
A.  Wells  is  to  receive  a  monthly  salary  of  $100  for  the  first 
year,  which  shall  be  a  first  charge  upon  the  profit,  after  pro- 
viding for  the  usual  business  expenses,  and  before  reckoning 
3%  upon  the  partner's  capital.  In  the  event  of  such  profit 
during  the  first  year,,  or  any  subsequent  year,  not  exceeding 
6%  of  the  total  capital  (after  payment  of  the  salary),  this 
salary  shall  be  reduced  to  $75.00  per  month  the  following  year, 
and  remain  so  until  the  yearly  profit  advances  to  more  than  6%, 
when  such  salary  shall  return  to  $100,  commencing  the  year 
succeeding  the  one  showing  the  required  increase  of  profit. 
Should  the  profit  in  any  one  year  amount  to  more  than  10% 
upon  capital,  A.  Wells  shall  be  entitled  (in  addition  to  the  salary 
he  has  received  for  that  year)  to  a  bonus  of  33  1-3%  upon 
any  sum  in  excess  up  to  $1,500.00,  and  25%  upon  any  further 
excess  and  this  bonus  shall  be  a  charge  against  profit,  before 
allotting  the  interest  at  3%  upon  capital.  Any  profit  then  re- 
maining shall  be  divided  equally.  From  the  following  partic- 
ulars, construct  separate  capital  accounts  for  partners  for  five 
years.  Starting  capital:  A.  Wells,  $6,000.00,  I.  M.  Anxious, 
$5,000.00. 
Profit  before  deducting  salary,  interest  or  bonus : 

i  st  Year   $1,750.00 

2nd    "       1,800.00 

3rd     "       4.250.00 

4th     " 5,000.00 

5th     "       Sooo.oo 

Xo  drawings  on  account.  Distribution  of  profits  when  ascer- 
tained. 


ii6  MICHIGAN  C.  P.  A.  MANUAL 

4.  James  Buck  died  March  31,  1908,  leaving  an  estate,  and  in  his 
last  will  made  a  public  accountant  his  executor.  The  will  pro- 
vided the  following: 

Legacies  of  $3,500.00  each  to  the  testator's  two  brothers. 
A  legacy  of  $5,000.00  to  the  testator's  sister. 
A  legacy  of  $2,500.00  to  the  testator's  nephew. 

The  residuary  estate  should  go  to  the  testator's  wife,  two  sons 
and  three  daughters  in  the  following  proportions :  2-5  to  the 
wife,  1-5  to  the  eldest  son,  and  i-io  each  to  the  second  son  and 
daughters  respectively. 

The  estate  consisted  of: 

Cash  on  hand   $     246.19 

Cash  at  Safety  Trust  Co 3.556.5O 

18  Imp.  Jap.  Gov.  4^%  Gold  Bonds  at  1,000 18,000.00 

30  shares  Chicago  &  Northestern  R.  R.  Stock  at  155  4,650.00 

25  shares  Penn.  R.  R.  Stock  at  122 3,050.00 

2  demand  notes  at  $500  each 1,000.00 

Stock  in  Business 9,375-QO 

The  testator  owed  to  F.  Harbor  $1,500.00. 

The  appraiser  appointed  by  the  court  inventoried  the  estate  as 
follows : 

18  Imp.  Jap.  Gov.  4^%  Gold  Bonds  at  $1,020.00. 
30  shares  Chicago  &  Northwestern  at  152  1-9. 
25  shares  Penn.  R.  R.  Stock  at  120. 
2  demand  notes  as  per  inventory. 
Stock  of  goods,  $8,000.00. 

The  executor  collected  from  the  Trust  Company  the  deposit  of 
$3>556.50  and  also  $28.96  in  interest.  He  sold  the  stocks  at 
the  appraised  figures  and  the  bonds  at  1025.  .He  paid  to  F. 
Harber  the  amount  due  him,  to  B.  Robert,  undertaker,  $786  for 
funeral  expenses.  He  also  paid  for  sundry  expenses  $286,  ap- 
proved by  the  court.  He  deducted  his  commissions  and  distrib- 
iited  the  funds  according  to  the  last  will. 
From  the  above  statement  prepare: 

(i)   Schedules  for  presentation  to  the  court  in  final  accounting. 
(a)    Statement    of    commissions    to    which    the    executor    was 
entitled. 


MICHIGAN  C.  P.  A.  MANUAL 


117 


5.  Harvey  Brothers  became  financially  embarrassed  and  a  trustee 
was  appointed  January  i,  1907,  to  take  charge  of  their  affairs 
for  the  benefit  of  the  creditors.  On  that  date,  (January  i, 
1907),  the  financial  condition  as  shown  by  their  balance  sheet 
was  as  follows: 

BALANCE  SHEET  OF  THE  FIRM  OF  HARVEY  BROS. 
AS  ON  JAN.  i,  1907 

Assets  Liabilities 

Cash  on  hand  and  in  Bank.$  1,006.50      Bills   Payable $6,000.00 

Bills  Rec. . $18,000.00                      Accts.  Payable 9,000.00  $15,000.00 

Accts.  Rec 4,500.00  22,500.00      Notes  Rec.  Disct 10,000.00 

Machinery  and  Tools 6,000.00      Loan  Payable 1,000.00 

Mdse.  Inventory   4,350.25      Taxes  Due '. 315.00 

Real  Estate  20,000.00      Mtge.  on  Real  Estate 15,000.00 

Mtge.  on  Mach.  and  Tools  5,000.00 

Capital 7,541-75 


$53,856.75  $53,856.75 

In  order  to  advantageously  realize  on  all  assets,  the  trustee  pur- 
chases merchandise  to  the  amount  of  $10,000.00  and  during  the 
year  collected  $21,350.00  cash  for  sales.  The  book  debts  realized 
$3,950.00.  Of  the  bills  receivable  entered  in  the  Balance  Sheet 
as  $18,000.00,  there  was  on  hand  only  $8,000.00,  the  balance  of 
$10,000.00  having  been  discounted  with  the  bank  and  which  are 
represented  on  the  liability  side  by  the  item  Notes  Receivable 
Discounted.  The  $8,000.00  notes  on  hand  realized  the  full  sum, 
while  of  the  $10,000.00  discounted  with  the  Bank  only  70% 
could  be  realized,  the  balance  was  lost. 

The  Bills  Payable,  Accounts  Payable,  Taxes  and  Interest  on 
Mortgages  (5/^%)  were  paid  in  course  of  settlement. 

Current  expenses  were  as  follows:  salaries  $1,000.00,  office 
expenses  $800.00,  legal  fees  $1,200.00,  withdrawals  for  private 
use  by  the  owners  $2,000.00,  trustee's  commission  $2,000.00. 

On  January  i,  1908,  the  trustee  surrendered  charge  of  the  estate 
and  paid  over  the  cash  balance  on  hand.  There  remained  on  that 
date  merchandise  on  hand  $5,600.00.  Prepare  a  realization  and 
liquidation  account,  a  trustee's  cash  account,  and  a  balance 
sheet  of  the  estate  at  termination  of  trust. 


n8  MICHIGAN  C.  P.  A.  MANUAL 

PRACTICAL  ACCOUNTING 


Saturday,  July  24,  1909,  from  i  :oo  P.  M.  to  6  :oo  P.  M. 


Answer  questions  i  and  2  and  two  of  the  others,  but  no  more. 
Answers  in  excess  of  the  number  required  will  not  be  considered. 


The  A.  Company  was  organized  July  i,  1905,  under  the  laws 
of  the  State  of  Michigan,  with  an  authorized  capital  stock  of 
$100,000.00,  divided  into  1,000  shares  of  $100.00  each.  Their 
operations  have  not  been  very  successful.  Their  stock  has 
never  paid  any  dividends,  and  their  capital,  at  present,  is  im- 
paired. The  stockholders  at  a  meeting  decided  to  reorganize 
the  company  and  for  that  purpose  a  committee  was  appointed 
to  have  the  properties  appraised  and  to  take  such  measures  as 
they  would  deem  advisable.  The  condition  of  affairs  as  dis- 
closed by  the  books  is  as  follows : 

Real  Estate  and  Buildings   $  35,000.00 

Plant  and  Machinery   28,000.00 

Equipment  and  Fixtures   14,000.00 

Tools   3,000.00        $  80,000.00 

Inventories : 

-  Finished  Goods  $  27,500.00 

Raw  Material  1 1,500.00 

Supplies  5,300.00  44,300.00 

Organization  Expenses  $    8,000.00 

Less  amount  written  off .    3,000.00  5,000.00 

Capital  Stock $100,000.00 

Treasury  Stock 5,000.00 

Bonded  Indebtedness 25,000.00 

Treasury  Bonds  5,000.00 

Accounts  Receivable 87,700.00 

Notes  Receivable   I7,8oo.ou 

Notes  Payable  26,200.00 

Accounts  Payable 82,000.00 

Loans  Payable  26,000.00 

Cash    3,200.00 

The  B.  Company  is  a  corporation  also  organized  under  the  laws 
of  this  state  and  in  existence  for  the  last  5  years.  The  capital 
stock  of  this  Company  is  $150,000.00,  divided  into  1,500  shares 


MICHIGAN  C.  P.  A.  MANUAL  119 

of  $100.00  par  value.  The  company  has  paid  an  annual  dividend 
of  9%  since  organization,  and  their  yearly  net  profits  were  as 
follows : 

i  st  year ;  $34,500.00 

2nd  year 33,000.00 

3rd  year  35,000.00 

4th  year  35,500.00 

5th  year  30,500.00 

Having  learned  of  the  financial  embarrassment  of  the  A.  Com- 
pany, and  desiring  to  get  possession  of  their  buildings  and  real 
estate  which  are  adjacent  to  the  B.  Company's  property,  they 
propose  to  the  committee  of  the  A.  Company  that  the  two  cor- 
porations be  amalgamated.  A  consolidation  agreement  was 
drawn  up,  containing  among  others  the  following  provisions: 

(1)  The  charter  of  the  B.  Company  is  to  be  amended  and  the 
name  changed  to  that  of  the  Consolidated  Manufacturing 
Company,  the  latter  to  absorb  the  stock  of  the  A.  and  B. 
Companies,  respectively. 

(2)  The  current  assets  of  the  A.  Company  are  to  be  taken  over 
at  their  book  value,  except  that  a  reserve  of  5%  be  deduct- 
ed on  notes  and  accounts  receivable. 

(3)  The  fixed  assets  are  to  be  taken  on  the  following  basis: 

(a)  Real  Estate  and  Buildings  at  15%  increase  of  book 
value. 

(b)  Plant  and  Machinery  at  85%  of  book  value. 

(c)  Equipment  and  Fixtures  at  80%  of  book  value. 

(d)  Tools  at  60%  of  book  value. 

(e)  Organization  expenses  are  not  to  be  considered  at  all. 

(4)  The  Consolidated  Manufacturing  Company  is  to  assume  the 
liabilities  of  the  A.  Company  to  the  public,  and  to  issue  to 
the  latter  capital  stock  for  the  excess  of  the  assets  over 
the  liabilities.     If  there  be  any  fractional  sum  of  $100.00, 
the  A.  Company  is  to  receive  a  full  $100.00  share  for  such 
fractional  part. 

(5)  The  assets  of  the  B.  Company  are  to  be  taken  over  at  their 
book  value  and,  in  addition,  the  company  is  also  to  be  given 
stock  for  the  good  will,  the  latter  to  be  based  on  the  last 
3  years'  net  profits  and  is  to  be  60%  of  that  total. 

(6)  The  Consolidated  Manufacturing  Company  is  to  provide 
for  a  bond  issue  of  $100,000.00  with  which  it  is  to  take  up 
the  outstanding  bonds  of  the  A.  Company,  and  to  sell  the 


120 


MICHIGAN  C.  P.  A.  MANUAL 

balance  in  order  to  raise  cash  funds.    The  stockholders  of 

each  respective  company  to  have  the  privilege  of  taking  the 

bonds  at  96. 
(7)   The  Consolidated  Manufacturing  Company  is  to  assume  all 

the  liabilities  to  the  public  of  the  B.  Company. 
Assuming  that  the  last  Balance  Sheet  of  the  B.  Company,  which 
is  as  follows,  presents  the  true  condition  of  this  concern : 

BALANCE  SHEET  OF  THE  <B.  COMPANY  AS  ON  -         —  1908 

Current  Assets 

Cash    $i  1,740 

Notes    Receivable    $  8,450 

Accounts  Receivable 74,93°    $83,380 

Less  Reserve 4,169        79,211 

Inventories 

Raw  Material $    9,840 

Goods  in  Process  '. 8,750 

Finished  Goods  121,550       140,140 

Total  of  Current  Assets $231,091 

Fixed  Assets 

Buildings  $20,000 

Less   Depreciation    1,000        19,000 

Plant  and  Machinery 85,700 

Less   Depreciation 8,570       77,130 

Equipment  and  Fixtures 34-90O 

Less   Depreciation    3,4QO       31,410 

Tools  (revalued)    6,369 

Total  of  fixed  assets 133,909  $365,000 

Current  Liabilities 

Notes  Payable  $  26,500 

Accounts    Payable    87,500        $114.000 

Capital  and  Surplus 

Capital  Stock $150,000 

Surplus   101,000        $251,000  $365,000 

You  are  required  to  give: 

(a)  Closing  entries  for  the  A.  Company. 

(b)  Journal  entries  for  the  Consolidated  Manufacturing  Com- 
pany  covering  capitalization,   issue   of   bonds,   taking   for 
granted  that  the  stockholders  of  the  A.  and  B.  Companies 
took  advantage  of  their  rights  with  regard  to  purchase  of 
bonds — and  also  payments  to  be  made  to  the  State  and 
County  authorities. 


MICHIGAN  C.  P.  A.  MANUAL  121 

(c)  Balance  Sheet  of  the  Consolidated  Manufacturing  Com- 
pany placing"  the  assets  of  the  A.  Company  at  the  value  as 
shown  by  the  latter's  books,  crediting  the  difference  be- 
tween the^  price  paid  for  them  and  the  revaluation  to  good 
will  paid  to  the  B.  Co. 

2.  A  company  of  bicycle  manufacturers   makes   up   its  accounts 
December  31,  1907,  for  the  year.    The  following  are  the  debits 
to  the  profit  and  loss  account : 

Raw  material  on  hand  January  i,  1907 $12,500  oo 

Finished  machines  on  hand  January  I,   1907,   1,600 

wheels  at  $30  48,000  oo 

Purchases  of  material    62,500.00 

Labor,  productive 82,500.00 

Manufacturing  expenses :    coal,  repairs,  paint,  var- 
nish,    superintendents'     salaries,      unproductive 

labor  and  sundry  other  expenses   23,000.00 

Agents  commissions 90,000.00 

Branch  expense :  rents,   salaries  and  miscellaneous  40,000.00 
Selling   expense:    travelers'    expenses    and    salaries, 

discounts,  rebates  and  miscellaneous   30,000.00 

Bad  Debts 8,000.00 

Depreciation  on  machinery  and  plant   5,500.00 

The  sales  for  the  year  1907  were  6,000  wheels,  yielding  $540,- 
ooo;  the  raw  material  on  December  31,  1907,  taken  at  cost  was 
$4,000,  and  the  finished  wheels  in  stock  ready  for  sale  num- 
bered 800.  Prepare  an  account  from  the  above,  showing: 

(a)  Number  of  wheels  manufactured; 

(b)  The  cost  per  wheel ; 

(c)  The  gross  manufacturing  profit; 

(d)  The  final  net  result,  including  in  the  profit  and  loss  account 
the  stock  of  finished  wheels  on  hand  December  31,  1907, 
at  their  cost  as  shown  by  the  accounts. 

3.  X,  Y,  and  Z,  foundrymen,  unable  to  meet  their  obligations,  sus- 
pend payment  January  I,  1908,  and  appoint  a  trustee  to  realize 
and  liquidate   for  the  benefit  of   their  creditors.     The  books 
showed  the  following  assets  and  liabilities : 

Land    and    building    $125,000  Mortgage  on    foundry  prem- 

Machinery  and  tools 75,ooo          ises   . . . .. $100,000 

Furniture  and  fixtures    10,000       Notes  payable  135,000 

Materials  and  supplies    95,ooo      Accounts  payable 105,040 

Notes  receivable 15,000  Interest  Accrued  on  Mtge.. . .       1,220 

Accounts  receivable   1 15,000       Taxes  Accrued  840 

Cash 450      Capital 93,350 


$435,450  $435,450 


122 


MICHIGAN  C.  P.  A.  MANUAL 


The  trustee's  cash  receipts  and  payments  during  the  year  1908 
were  as  follows: 

Notes    receivable     (outstand-  Notes  payable  $  25,000 

ing  Jan.  i,  '08) $  15,000      Accounts  payahle  35,ooo 

Accts.  Rec.  (outstanding  Jan.                     Interest  on  Mtge.  i  yr.,  at  5%  5,ooo 

i, '08)   106,500      Taxes   for  year   1907 810 

Cash  sales    5,435       Purchase     of     material     and 

Notes  Rec.  (cont.  during  '08)     13,500          supplies  98,000 

Accts.  Rec.  (cont.  during  '08)   212,000      Labor 135,030 

General  expenses  45,020 

Interest    on    bills    payable    to 

Sept.   30,   '08,   @   5% 2,800 

Total  receipts   $352,435          Total  payments : $346,660 

Other  transactions  were  as  follows : 

Sales  on  credit ?335,OvX) 

Bad  Debts  written  off  accounts  prior  to 

January  i,  1908 $8,000 

Bad  Debts  written  off  accounts  subsequent 

to  January  i,  1908 2,000  10,000 

Discounts  and  allowances  to  Customers'  ac- 
counts prior  to  January  i,  1908 500 

Discounts  and  allowances  to  Customers'  ac- 
counts subsequent. to  January  i,  1908.  300  800 

Notes   received   from  customers    20,000 

Notes  given  to  Creditors  (110,000  being 

renewals)  180,000 

Inventory  of  Materials,  Dec.  31,  1908 92,000 

At  the  end  of  the  year  the  business  was  returned  to  the  owners. 
Prepare  realization  and  liquidation  account,  and  balance  sheet. 

4.  A  company  is  formed  under  the  laws  of  Mexico,  to  take  over 
and  work  certain  mining  properties.  At  the  end  of  one  year 
the  company  is  found  to  possess: 


Mining  lands   

Buildings  and  improvements 

Machinery    

Cash  on  hand  and  in  bank  .  . 
Silver   bullion    . 


$484,675-48 

20,499.76 

25,612.88 

24,612.50 

85,209.50 

Ore  in  dump 13,680.00 

Merchandise    5,420.80 

Fuel,  Oil,  etc 4 679.20 


MICHIGAN  C.  P.  A.  MANUAL  123 

The  company  owes : 

On  open  accounts    3,890.12 

On  account  of  pay-rolls  400.00 

Note  due  in  six  months  with  interest  at  6% 25,000.00 

Capital  Stock  ( full  paid)  is 500,000.00 

•Set  up  balance  sheet. 

As  the  greater  part  of  the  capital  invested  in  the  above  under- 
taking is  furnished  by  citizens  of  the  State  of  Michigan  a 
corporation  is  organized  under  the  laws  of  this  state  to  acquire 
a  majority  of  the  capital  stock  of  the  Mexican  company  and 
thus  to  control  its  affairs.  The  capital  is  fixed  at  $200,000,  all 
of  which  is  subscribed  for  and  paid  in  at  120.  An  issue  of  $200,- 
ooo  in  20  year  6%  gold  bonds  is  authorized 'and  sold  at  no. 
The  new  company  purchases  4,000  shares  of  the  Capital  Stock 
of  the  Mexican  company,  par  value  $100  per  share,  Mexican 
silver  at  150.  At  the  end  of  one  year  a  dividend  of  15%  is  re- 
ceived on  these  shares.  The  taxes  and  expenses  of  the  Com- 
pany are  $8,640.  Set  up  a  profit  and  loss  statement  and  balance 
sheet,  assuming  the  value  of  the  Mexican  dollar  to  be  50  cents, 
gold,  and  show  how  cash  balance  is  arrived  at. 
5.  On  January  i,  the  Fairview  Real  Estate  Association  was  incor- 
porated, the  capital  subscribed  and  paid  in  being  $30,000,  divided 
into  30  shares.  The  association  purchased  improved  property 
for  speculative  purposes,  paying  cash  $30,000  and  giving  a  first 
mortgage  for  $60,000  at  6%.  The  association  organizes  and  in- 
corporates on  the  same  day  the  Fairview  Club,  with  30  pro- 
prietary members  (being  the  stockholders  of  the  real  estate  asso- 
ciation), and  30  associate  members  who  have  no  proprietary  in- 
terest but  enjoy  all  the  privileges  without  incurring  any  of  the 
liabilities.  The  annual  dues  are  $100  a  year,  paid  by  all  in 
advance. 

The  association  leases  to  the  club  the  property  aforesaid,  the 
consideration,  in  lieu  of  rent,  being  the  payment  by  the  club  of 
all  sums  for  taxes,  betterments,  interest,  fixtures,  furniture,  etc. 
The  proprietary  members  are  assessed  $300  each,  and  by  a  subse- 
quent resolution  of  the  association  are  to  receive  credit  there- 
for, with  interest  at  6%.  Five  members  fail  to  pay  the  assess- 
ment. 

The  association  having  executed  a  contract  for  the  sale  of  the 
property  for  $110,000,  the  club  disbands  at  the  end  of  the  year. 
The  club  expenditures  for  the  year  were  as  follows:  taxes, 


I24  MICHIGAN  C.  P.  A.  MANUAL 

$1,800;  interest  on  mortgage,  $3,600;  repairs,  $1,000;  improve- 
ments, $3,000 ;  furniture  and  fixtures,  $2,000 ;  general  expenses, 
$500;  help  (sundry  employees)  $1,600.00.  There  were  house 
charges  against  the  members  of  $500  which  were  subsequently 
collected;  and  there  were  payable  book  debts  of  $4,000.  A 
second  assessment  of  $100  called  for  to  pay  off  the  club  debts, 
was  paid  by  the  proprietary  members  of  the  association. 
Frame  journal  entries,  raise  and  close  accounts  on  the  associa- 
tion and  the  club  books,  and  prepare  balance  sheet  and  revenue 
account  for  each. 

6.    The  ledger  of  Jenkins  and  Brown  at  the  end  of  the  fiscal  year 
showed  the  following  balances : 

H.  Jenkins  ' , $18,950.00 

A.  Brown    18,950.00 

Bills  receivable    750.00 

Cash    $  3,000.00 

Book  Accts.   receivable 18,000.00 

Inventory : 

Raw  materials   $  8,000.00 

Labor 12,000.00 

Manufactured    goods    6,500.00  26,500.00 

Accounts  payable 2,350.00 

Bills  payable 8,000.00 


$48,250.00  $48,250.00 

Pursuant  to  agreement  each  partner  .had  drawn  $2,800  as  salary 
which  had  been  charged  as  an  expense  to  the  business.  The 
profits  and  losses  were  then  divided  equally.  The  results  for 
the  period  just  ended  showed  a  net  loss  of  $2,500  which  the 
partners  were  unable  to  understand  in  view  of  the  fact  that  they 
had  done  a  business  of  $100,000,  and  according  to  their  cost 
calculation  this  should  have  produced  a  profit  over  and  above 
their  salaries.  An  accountant  was  called  in  to  explain  the  un- 
accountable loss.  An  analysis  of  the  merchandise  and  profit 
and  loss  accounts  (into  one  or  the  other  of  which  the  nominal 
accounts  had  all  been  closed)  showed  the  following  summary : 

Raw  material  at  commencement  of  period $    9,000.00 

Labor  at  commencement  of  period 13,000.00 

Manufactured  goods  at  commencement  of  period.     22,000.00 

Purchases  during  period   20,000.00 

Labor    35,000.00 

Wages    4,000.00 


MICHIGAN  C.  P.  A.  MANUAL  J25 

Traveling  expense,  commission,   etc 10,500.00 

Salaries     2,000.00 

Rent    1,500.00 

Bad   Debts    2,550.00 

Sundry  depreciation    600.00 

Discounts  and  interest   250.00 

Gross    sales    100,000.00 

Return   sales 3,000.00 

An  inspection  of  their  cost  records  showed  the  following  con- 
sumption : 

Material $18,000.00 

Labor 32,000.00 

Prepare  accounts  that  will  give  expression  to  their  transactions 
and  thereby  indicate  any  discrepancy  that  the  above  figures  may 
reveal. 


PRACTICAL  ACCOUNTING 


Saturday,  June  25,  1910,  from  I  130  P.  M.  to  6:30  P.  M. 


Questions  i  and  2  must  be  answered  and  one  of  the  other  three. 


The  New  Corporation  became  incorporated  for  $100,000  and  on 
January  i,  1909,  acquired  the  entire  business,  real  estate, 
patent  rights,  etc.,  of  A.  B.  The  New  Corporation  issued  $87,- 
500  in  stock  to  A.  B.  in  purchase  of  the  business.  The  remaining 
$12,500  was  sold  for  $15,000.00  to  A,  payable  in  five  monthly 
installments  of  $3,000.00  each,  the  first  installment  to  be  paid 
September  30,  1909. 

The  firm  of  A.  B.  commenced  business  January  i,  1907.  You 
find  that  the  books  were  not  closed  at  the  date  the  business  was 
acquired  by  the  New  Corporation  and  that  no  entries  have  been 
made  to  give  effect  to  above  transactions.  You  are  furnished 
with  the  information  below  and  are  required  to  compile  a  Loss 
and  Gain  Account  covering  the  operations  of  the  New  Corpora- 
tion from  January  I,  1909  to  December  31,  1909,  together  with 
a  Balance  Sheet  on  December  31,  1909,  having  given  effect  to 
the  above  transactions. 


126  MICHIGAN  C.  P.  A.  MANUAL 

The  following  are  the  ledger  balances  drawn  from  the  books 
on  the  respective  dates : 

Jan.  i,  1909  Dec.  31,  1909 
These  Accts. 
represent  the 
entire   period 
since  com- 
mencement of 
business. 

Cash    $       32.00  $  5,768.00 

Notes  receivable  . : 625.00  625.00 

Accounts  receivable  8,650.00  30,105.00 

Sundry  debtors   1 12.00  866.00 

Real  Estate  and  Buildings   6,782.00  7,434.00 

Machinery     5,968.00  1 1,498.00 

Patterns,   Dies,  etc 202.00  973  oo 

Shop  equipment    2,757.00  3,476  oo 

Notes  payable    9,740.00  18,700.00 

Accounts    payable    7,901.00  5,071.00 

Sundry  creditors    471.00  402.00 

U.  payment  upon  purchase  of  capital 

stock   12,000.00 

A.  B.  Capital  Account 16,000.00  16,000.00 

Sales   37,421.00  97,150.00 

Royalties  received    15,760.00 

Manufacturing  materials   13,260.00  34,155.00 

Manufacturing  labor 5,730.00  14,401.00 

Advertising     2,730.00  5,924.00 

Drafting  Room  salaries  and  expense.     1,120.00  2,660.00 

Experimental     1,230.00  1,980.00 

Fuel    1,410.00  2,270.00 

Freight,  Exp.  and  Cartage,  in 950.00  2,410.00 

Freight,  Exp.  and  Cartage,  out 1,170.00  2,490.00 

Insurance    410.00  750.00 

Incidentals    317.00  637.00 

Miscellaneous   factory  supplies    900.00  2,500.00 

Non-productive  labor   830.00  2,262.00 

Postage  173-00  355-OO 

Stationery  and  Office  Supplies    185.00  456.00 

Salaries,   office   and   management....    10,460.00  17,241.00 

Salaries,   salesmen    2,870.00  6,290.00 

Traveling  expenses    1,150.00  3,857.00 

Taxes   210.00  520.00 

Watchman  and  Engineer  760.00  1,720.00 

Interest    540.00  1,460.00 


MICHIGAN  C.  P.  A.  MANUAL 


127 


The  following  are  the  inventories  and  reserves  for  the  respective 

periods  to  be  inserted : 

Inventories    $2,451.00        $8,460.00 

Reserve  for  Bad  and  Doubtful  Accts. . .      500.00          1,500.00 
Reserve  for  Depreciation  of  Plant 780.00          1,230.00 

Prepaid  and  accrued  expenses  may  be  ignored  for  the  purpose 
of  this  question. 

2.  You  are  asked  to  examine  the  books  of  the  Michigan  Manu- 
facturing Company  with  a  view  to  ascertaining  their  true  finan- 
cial position  at  the  close  of  their  year  ending  May  31,  1910.  The 
following  trial  balance  is  submitted : 

Cash  on  Hand  and  in  Bank   $       430.15 

Notes  Receivable   7,907.62 

Customers'   Accounts    20,797.80 

Real  Estate  and  Buildings  35,333-83 

Machinery  and  Equipment   12,344.88 

Horses,  Wagons,  etc 1,265.40 

Power  Machinery  Co 727.77 

Manufacturing  Materials  1 33,848.53 

Misc.   Factory  Supplies    1,631.09 

Productive   Labor    63,842.23 

Freight,  Express  and  Cartage  "In"...  1,734.70 

Stable  Expense   1,694.11 

Misc.  Non-Productive  Labor 1,993.50 

Fuel    : 5,554.82 

Insurance    3,872.32 

Repairs  to  Machinery 507.73 

Water  Tax 140.53 

Advertising     378.58 

Discount  allowed  to  Customers 3,362.19 

Postage  264.42 

Salaries    6,170.00 

Stationery  and  Office  Supplies 296.02 

Miscellaneous   Main  Office  Expense..  241.08 

Interest  Paid 3,386.8o 

Accrued  Pay  Rolls    $       487.66 

Notes  Payable  22,344.81 

Accounts   Payable    5,512,34 

Sundry  Creditors   2,511.89 

Reserve  for  Bad  Debts 1,059.51 

Capital  Stock  85,000.00 

Saks  187.540.38 

Discounts  Earned  on  Purchases 2,081.59 

Interest  Earned 463.17 

Miscellaneous  Earnings   724.75 


$307,726.10    $307,726.10 


128  MICHIGAN  C.  P.  A.  MANUAL 

You  find  that  the  inventory  of  manufacturing  material  at  the 
beginning  of  the  year  was  $27,214.41,  and  at  the  close  of  the 
year  $51,358.58.  At  the  close  of  the  year  there  was  also  factory 
supplies  on  hand  to  the  amount  of  $200.00,  as  well  as  fuel  $2,- 
188.40,  and  horse  feed  $14.22.  You  find  that  the  unexpired 
insurance  premiums  amounted  to  $1,720.18;  that  the  accrued 
interest  on  notes  payable  amounted  to  $134.83  and  accrued 
taxes  to  $376.75.  An  analysis  of  the  customers'  accounts  dis- 
closed the  fact  that  $9,128.11  was  very  doubtful  of  collection. 
The  item  of  $727.77  to  Power  Machinery  Co.  represents  an 
advance  payment  made  on  machinery  which  has  been  purchased, 
but  not  yet  completely  installed  and  not  included  in  machinery 
account.  You  find  in  the  account  for  horses  and  wagons  a 
charge  for  $75.00  for  difference  paid  on  an  exchange  of  horses, 
the  new  horse  being  presumably  of  the  same  value  at  which  the 
old  horse  was  originally  entered.  Prepare  Balance  Sheet,  Man- 
ufacturing Statement  and  Loss  and  Gain  Statement  providing 
for  Depreciation  of  10%  on  Machinery  and  Equipment. 
3.  Adam  Smith  and  Thomas  Gray  have  been  in  business  as  con- 
tractors for  the  last  six  years.  Each  invested  $63,000  cash  and 
was  to  receive  one-half  of  the  gain  and  bear  half  of  the  losses, 
which  were  as  follows  for  the  entire  period : 

Year  1899,  Gain    $15,000.00 

1900,  Gain 18,000.00 

1901,  Gain  21,852.00 

1902,  Gain  1,500.00 

1903,  Loss 1,500.00 

1904,  Loss 3,000.00 

Each  withdrew  from  the  business  for  private  use  $6,000.00  per 
year.  On  December  31,  1904,  an  assignment  was  made  and  the 
Assignee  obtained  the  following  information  in  addition  to  that 
already  given,  from  which  he  proceeded  to  make  a  Statement 
of  Affairs  and  a  Deficiency  Account  to  be  placed  before  the 
creditors : 

Unsecured   Creditors   on  open   account $27,000.00 

Fully  secured  Creditors   6,900.00 

Securities  held  by  above  consist  of  patents, 

valued  at 9,000.00 

Partly  secured  Creditors   . . 105,000.00 

Securities  held  by  above  consist  of  railway 

shares,  valued  at 60,000.00 

Wages  due  2,000.00 

Rent  due  400.00 

Bills  Payable   60,000.00 


MICHIGAN  C.  P.  A.  MANUAL  129 

Book  Debts  (Good)    3,000.00 

Book  Debts  (Doubtful),  (Est.  worth  $225.00)....  800.00 

Book  Debts  (Bad),  of  no  value  900.00 

Stock  in  Trade  1 12,500.00 

Above  is  estimated  worth  66,600.00 

Plant  and  Machinery  cost 120,000.00 

Above  estimated  to  produce   60,000.00 

Office  Furniture,  $900  estimated  worth    600.00 

Bills  Receivable  under  Discount  10,000.00 

Estimated  Liability  of  Estate  on  above  4,000.00 

Cash  in  Bank. 252.00 

From  the  facts  given  above  prepare : 

(a)  A  Statement  of  Affairs. 

(b)  A  Deficiency  Account. 

Compile  from  the  following  particulars,  supplied  by  the 
branches,  an  account  with  each  branch  in  the  books  at  the 
head  office  of  the  Wholesale  Co.,  whose  year  ends  December 
31,1909,  bringing  down  the  balances  as  they  should  appear  on 
January  I,  1910. 

The  branches  receive  all  their  goods  from  the  head  office  and  pay 
in  all  of  their  cash  every  day.  They  keep  their  own  sales  ledgers 
and  do  their  own  collecting.  All  payments  for  wages  and  ex- 
penses at  the  branches  are  drawn  by  check  from  the  head  office 
on  the  Imprest  system. 

A  B 

Merchandise  received  from  head 

office    $10,360.00        $10,730.00 

Cash  received  from  customers 11,450.00          10,340.00 

Allowance  to  customers  15.00  35-OO 

Returns  from  customers   75-OO  200.00 

One  year's  sales  to  Dec.  31,  1909 10,870.00          12,605.00 

Cash  Sales   8,400.00  5,700.00 

Bad  Debts  280.00  530.00 

Inventory  of  Mdse.  at  Jan.  I,  1909. .  . .     2,300.00  2,500.00 

Debtors  at  January  I,  1909 8,270.00  5,730.oo 

Debtors  at  December  31,  1909 7,320.00  8,760.00 

Inventory  at   December  31,    1009 3,750.00  4,320.00 

Rent  and  Taxes  paid 600.00  730.00 

Wages  and  other  expenses 2,020.00  2,310.00 

A.  and  B.  are  partners  sharing  profits  and  losses  equally.  Their 
respective  capital  accounts  are:  A,  $6,000.00;  B,  $1,500.00. 
Their  liabilities  amount  to  $15,000.00,  which  includes  $3,000.00 
due  A  on  loan  account  and  $1,500.00  due  to  B  on  loan  account. 
Give  the  ledger  accounts  showing  closing  up  of  the  partnership. 


1 3o 


MICHIGAN  C.  P.  A.  MANUAL 


PRACTICAL  ACCOUNTING 


Friday,  June  28,  1912,  from  1 130  P.  M.  to  7:00  P.  M. 


Questions  I  and  2  must  be  answered  and  two  of  the  other  four. 


I.  The  Detroit  United  Railway  Company  with  an  authorized  Cap- 
ital Stock  of  $1,000,000  consisting  of  5,000  shares  each  of  Pre- 
ferred and  Common  Stock  at  the  par  value  of  $100,  had  on 
January  ist,  1912,  assets  and  liabilities  as  follows: 

ASSETS 

Real  Estate  and  Building $200,000.00 

Power  Plant  and  Machinery 250,000.00 

Aerial  Construction  200,000.00 

Surface  Construction    200,000.00 

Underground  Construction   150,000.00 

Rolling  Stock    300,000.00 

Accounts  Receivable    10,000.00 

Cash 5,000.00    $  1,315,000.130 

LIABILITIES 

Preferred  Stock   $450,000.00 

Common  Stock 400,000.00 

First  Mortgage  Bond,  5% 350,000.00 

Accounts  Payable 5,000.00 

Surplus    110,000.00    $1,315,000.00 

The  Pontiac  Electric  Company,  with  an  authorized  Capital  Stock 
of  $500,000,  had  on  the  same  day,  assets  and  liabilities  as  fol- 
lows : 

ASSETS 

Real   Estate    $300,000.00 

Power  Plant  and  Machinery   150,000.00 

Aerial    Construction    125,000.00 

Underground  Construction   100,000.00 

Sundry  Assets   15.000.00 

Profit  and  Loss  10,000.00    $     700,000.00 

LIABILITIES 

Capital  Stock  $500,000.00 

Mortgage,  6%   100,000.00 

Accounts  Payable 100,000.00    $     700,000.00 


MICHIGAN  C.  P.  A.  MANUAL  131 

The  Detroit  United  Railway  Company  purchased  securities  of 
the  Pontiac  Electric  Company  in  Quantities  and  at  prices  as 
follows : 

$400,000  of  the  Capital  Stock  at  $125,  payable  in  cash. 

$50,000  of  the  Capital  Stock  at  $130,  payable  with  $30,000  of 
the  preferred  stock  of  the  Detroit  United  Railway  Company  at 
$150  and  cash  to  balance. 

$100,000  of  the  bonds  at  $115,  payable  in  the  unissued  common 
stock  of  the  Detroit  United  Railway  Company,  at  $93  and  cash 
to  balance. 

$10,000  of  the  cash  payable  for  the  stock  purchased  to  be 
passed  to  credit  of  Profit  and  Loss  account  of  the  Pontiac  Elec- 
tric Company  by  the  vendors  to  cancel  the  charge  of  like  amount 
to  said  account. 

To  provide  funds  to  meet  the  above  obligations  and  also  to  re- 
tire its  5%  Mortgage  Bonds  at  $105,  the  Detroit  United  Rail- 
way Company  issued  $1,000,000  of  4%  Bonds  and  sold  the 
entire  amount  for  cash  at  95%. 

Assuming  that  the  dividend  of  the  Pontiac  Electric  Company 
declared  during  the  year  1912  amounted  to  $25,000,  and  the 
profit  of  the  Detroit  United  Railway  Company  from  operating 
exclusive  of  interest  on  its  bonded  debt  amounted  to  $100,000, 
to  what  extent  has  the  profit  and  loss  of  the  Detroit  United 
Railway  Company  been  affected,  during  the  year,  by  reason  of 
its  acquisition  of  the  securities  of  the  Pontiac  Electric  Company 
and  of  the  redemption  of  its  own  5%  Bonds.  Show  also  the 
condition  of  accounts  of  the  Detroit  United  Railway  Company 
at  the  end  of  the  year. 

2.  The  Detroit  Gas  Light  Company  had  operated  a  gas  plant  since 
the  beginning  of  the  year  1896.  For  the  purpose  of  acquiring 
this  industry,  the  American  Gas  Company  was  organized  April 
i,  1912,  with  a  capital  of  $100,000,  and  after  purchasing  all  of 
the  capital  stock  of  the  Detroit  Company,  issued  $100,000  of 
first  mortgage  6%  gold  bonds,  dated  April  i,  1912.  due  April 
i,  1942,  interest  payable  January  i  and  July  i,  of  each  year. 

June  20,  1912,  the  two  companies  were  united  by  a  certificate  of 
merger  and  new  books  were  opened.  The  accounts  of  the 


132  MICHIGAN  C.  P.  A.  MANUAL 

Detroit  Gas  Light  Company  had  not  been  closed  at  any  time  dur- 
ing the  Company's  existence,  and  at  the  date  of  the  merger  stood 
as  follows: 

Land    and    buildings,    ma-  Capital    $50,000.00 

chinery,  mains  and  fran-  Bills   payable    5,000.00 

chises  $  82,360.73      Accounts  payable 2,679.81 

Materials  and  tools  1,856.30      Gas  account 157,683.33 

Coal,  (including  freight)  . .     47,540.45      Coke  account  6,210.69 

Labor 50,668.73      Tar  account 4,500.54 

Repairs 13,872.46 

Water  and  other  supplies. .  3,869.39 

Superintendent    3,500.00 

Salaries    (clerks    and    col- 
lectors)      5,600.00 

Office  expenses 2,100.00 

Insurance 1,435.00 

Taxes   4,237.10 

Interest     1,450.40 

Cash '...  2,251.47 

Consumers'  Accts 3,210.44 

Other  Accts.  Rec 2,121.90 

$226,074.37  $226,074.37 

The  inventory  was  as  follows : 

Coal   $400 

Coke  150 

Tar  ioo        $650 

In  acquiring  the  stock  of  the  Detroit  Company,  paying  organ- 
ization expenses,  etc.,  the  American  Company  used  all  its  capital 
stock  and  $90,000  first  mortgage  bonds,  holding  in  reserve  $10,- 
ooo  of  bonds  for  improvements. 

Make  the  necessary  journal  entries  to  open  the  books  of  the  new 
company  and  prepare  a  balance  sheet  dated  June  20,  1912;  also 
prepare  a  profit  and  loss  account  showing  the  average  annual 
results  of  operating  the  old  company. 

3.  The  Michigan  Manufacturing  Company  was  incorporated  under 
the  laws  of  the  State  of  Michigan,  February  i,  1912,  with  a 
capital  stock  of  $10,000,000,  consisting  of  $4,500,000  (45,000 
shares  of  $100  each)  preferred  7%  non-cumulative  stock,  and 
$5,500,000  (55,000  shares  of  $100  each)  of  common  stock.  On 


MICHIGAN  C.  P.  A.  MANUAL 


133 


the  same  date  $2,000  of  the  common  stock  was  subscribed  for 
at  par  as  follows : 

By  A.  Van  Oss 2  shares  $   200 

By  T.  L.  W.  Porte  4  shares  .        400 

By  Wiley  T.  Lyon 4  shares  400 

By  David  Smith   3  shares  300 

By  William  Leslie 7  shares  700 

On  February  4,  1912,  these  subscribers  paid  into  the  Company 
the  amount  of  their  subscriptions,  and  stock  was  issued  to  them. 
February  15,  the  balance  of  the  authorized  capital  stock  of  the 
company,  both  preferred  and  common,  was  issued  by  resolution 
of  the  board  of  directors  to  A.  A.  Keiser,  for  and  in  considera- 
tion of  $750,000  in  cash  and  twelve  (12)  manufacturing  plants. 
An  inventory  of  the  property  purchased,  made  by  authorized 
representatives  of  the  company,  resulted  in  the  following  ap- 
praised valuations  on  the  various  plants  and  the  stocks  on  hand : 


1 

C/} 


o  5 

£j  "rrt 

TT  ,  3-5 

A   $  430,000 

B    211,000 

C    495,ooo 

D   304,000 

E    171,000 

F    86,500 

G   47,250 

H  98,000 

I    101,250 

J    37,ooo 

K   346,000 

L,    121,000 


v 

$  95,ooo 


38,500 
15,000 
32,750 
81,000 
44,000 
35,750 
11,000 
13,000 
49,000 
67,000 


W 


195,000 

130,000 

475,000 

924,000 

184,000 

60,000 

30,000 

20,000 

10,000 

11,000 

14,000 
37,000 


PQ 

20,OOO 
10,000 
11,000 

13,000 
14,500 
17,750 
32,500 

14,600 
17,200 
19.200 
75,000 
34,750 


£> 

3 
£ 

<u 
_C 

1 


98,000 
84,000 
62,OOO 
48,000 
89,000 
26,000 

34,000 
62,000 

1 1, OOO 

35,000 
71,000 
44,000 


Totals    $2,448,000        $526,000        $2,090,000        $279,500        $664,000 

Open  the  accounts  of  the  company  so  that  the  result  of  the  oper- 
ation of  each  factory  will  be  known  at  the  end  of  the  company's 
fiscal  year.  The  books  of  the  company  are  not  to  show  the 
appraised  valuation  placed  on  the  real  estate,  buildings,  tools, 


MICHIGAN  C.  P.  A.  MANUAL 

machinery,  etc.,  by  factories,  but  in  one  amount  only ;  and  it  is 
desired  that  the  account  include  any  expenditure  incurred  by  the 
company  for  good-will,  etc. 

Make  opening  entries  in  cash-book,  journal,  and  ledger,  cover- 
ing in  full  the  above  transactions. 

The  Get-Rich  Book  Company,  a  corporation,  goes  into  volun- 
tary  liquidation   and   the   directors   of   the   company,   three   in 
number,  are  designated  as  trustees  in  liquidation. 
Below  is  a  trial  balance  of  the  Company  as  of  June  28,  1912, 
the  date  when  its  affairs  are  turned  over  to  the  trustees : 

1  Capital  Stock  $  20,000.00 

2  Cash $       553.69 

3  Office  Furniture    1,666.92 

4  Meter  Deposit   60.00 

5  Accounts  Receivable   26,153.95 

6  Rogers    &    Co.,    monies    col- 

lected for  their  acct 14,738.00 

7  Notes  Payable  27,573  50 

8  Accounts  Payable 4,197.22 

9  Merchandise  purchased    27,404.74 

10  Merchandise  sales    8,045.35 

1 1  Expense  10,751.97 

12  Loss  and  Gain  7,962.80 


$  74,554-07        $  74,554-07 

Value  of  Merchandise  on  hand,  $20,183.86;  other  assets,  (items 
3,  4,  and  5.),  valued  as  in  ledger.  Trustees'  cash  receipts  and 
payments  as  follows : 

RECEIPTS 

Balance  on  hand $       553.69 

Meter  Deposit   60.00 

Office  Furniture  sold 487.90 

Accounts  Receivable  collected  22,872.75 

Additional  Collections  for  Rogers  &  Co 1,965.24 

Sales  of  Merchandise 22,090.70 

Commission  received  from  Rogers  &  Co 6,703.24 

PAYMENTS 

Notes  paid   $  27,573.50 

Accounts  paid   • 4,197.22 

Merchandise  bought   562.55 

Expenses  5,697.01 

Remitted  Rogers  &  Co.  in  full 16,703.24 


MICHIGAN  C.  P.  A.  MANUAL  135 

Accounts  Receivable  not  collected  are  worthless.  Prepare  the 
accounts  of  the  trustees  in  liquidation. 

5.  Three  brothers,  A,  B,  and  C,  own  all  the  capital  stock  (each  1-3) 
of  a  certain  corporation  X.     They  own  also,  but  not  equally, 
55%  of  the  capital  stock  of  a  kindred  corporation  Y  which  is 
capitalized  for  $100,000,  the  par  value  of  the  shares  being  $10. 
The  holdings  of  each  in  the  Y  corporation  are  as  follows : 

A  2222  shares 

B 2222         "       - 

C  1056      " 

The  three  brothers,  acting  as  the  corporation  X,  purchase  out 
of  corporate  funds  the  remaining  45%  interest  in  the  corpora- 
tion Y,  paying  $100,000  therefor.  Without  further  cost  to  X 
they  now  wish  to  merge  the  two  corporations  under  the  cor- 
porate name  X  and  dissolve  Y. 

C  proposed  to  make  compensation  to  A  and  B  individually  for 
an  equal  interest  in  the  5,500  shares  upon  the  same  basis  as  the 
45%  interest  was  acquired  so  that  all  may  share  equally  in  the 
merged  properties. 

How  much  should  C  pay  to  each  of  the  other  stockholders  ?  Out- 
line the  entries  necessary  to  record  all  the  above  stated  transac- 
tions on  the  books  of  X  and  Y. 

6.  A  firm  desires  to  transfer  its  property  to  a  corporation  duly 
organized  to  carry  on  the  business.    The  net  assets  of  the  firm 
consist  of  the  following: 

Lands   and   Buildings    $  150,000 

Inventory    100,000 

Accounts  Receivable   150,000 

Good  Will  and  Patents 100,000 

Cash 50,000 


$550,000 

It  is  proposed  to  issue  in  full  payment  therefor,  bonds,  preferred 
stock,  and  common  stock  aggregating  the  sum  of  $500,006,  of 
which  each  partner  is  to  receive  his  proportionate  share  accord- 
ing to  his  interest  in  the  firm,  viz:  Jones,  60%;  Brown,  25%, 
and  Smith  15%. 

(a)  Prepare  opening  entries  for  the  new  company. 

(b)  Prepare  a  statement  of  assets  and  liabilities. 

(c)  State  what  amount  of  each  class  of  securities  each  of  the 
partners  should  receive. 


136 


MICHIGAN  C.  P.  A.  MANUAL 


PRACTICAL  ACCOUNTING 


Thursday,  June  12,  1913,  1:30  P.  M.  to  6:30  P.  M. 


First  three  and  two  of  the  last  three  required  to  be  answered. 


(30  credits) 

The  Imperial  Manufacturing  Company,  authorized  capital  $i,- 
000,000.00  Common,  $1,000,000.00  Preferred,  has  called  you 
in  to  assist  in  closing  the  books  at  the  close  of  its  fiscal  year, 
December  31,  1912.  The  company  operates  three  plants,  the 
product  of  two  of  which  is  sold  principally  to  the  third  at  slight- 
ly above  supposed  cost. 

IMPERIAL  MANUFACTURING  COMPANY 

TRIAL  BALANCE  DEC.  31,  1912 

Accounts  Payable  $      54,674.02 

Accounts  Receivable  $  258,995.73 

Advances  to  Salesmen   5,530-98 

Advances  to  Plant  No.  3 698.10 

Auto  Trucks   5,745.00 

Cash  in  Bank 7,998.88 

Buildings  Plant  No.  i 150,200.00 

Buildings  Plant  No.  2 40,319.20 

Buildings  Plant  No.  3 36,548.11 

Building  reserve  for  depreciation  31,249.62 

Capital  Stock— Common    750,000.00 

Capital   Stock— Preferred    750,000.00 

Canadian  Wheel  Co.— Stock 70,000.00 

Goods  returned  17,262.83 

Allowances 8,669.58 

Cash  Discounts  5,706.41 

Cash  Discounts  3,692.32 

Electrotypes  1,800.00 

Furniture  and  Fix.,  Plant  No.  I . .  13,854-85 

Furniture    1,747.91 

Administrative  expenses  : 

Stationery  and  Printing 4,169.85 

Telephone  and  Telegraph   2,921.00 

Postage    2,532.04 

Donations    3,964.49 

Sundry  Administrative  Expense  5,519.46 

Legal      22,870.17 

Salaries    59,263.27 


MICHIGAN  C.  P.  A.  MANUAL 

Goods  shipped  "No  charge" 3,891.81 

Interest  expense   3,678.04 

Interest  earned    33974 

Machinery  Plant  No.   1 165,240.80 

Machinery  Plant  No.  2 55,540.12 

Machinery  Plant  No.  3 65,000.00 

Imprest  Cash  125.00 

Machinery  reserve  for  Depreciat'n  74,00819 

Royalty  on  patents  owned 3,232  50 

Notes  payable   45,500  oo 

Royalty  on  patents  leased 2,266.00 

Notes  receivable  5,705.17 

Patents   and  Trade-Marks    750,000.00 

Patterns  36,309.31 

Profit  and  Loss  Current  25,751.24 

Real  Estate 49,700.00 

Restaurant  Operating   545.22 

Restaurant  Equipment    325.54 

Sales  Plant  No.  I    1,242,046.48 

Sales  Plant  No.  2   7,351-94 

Sales  Plant  2  to  Plant  i   135,006.64 

Sales  Plant  3  to  Plant  I   64,190.20 

Deferred  Experimental  Charges..         28,514.09 

Selling  Expense    112,581.28 

Treasury  Stock 8,300.00 

Surplus,  1911 203,313.71 

Gain  account  Re-appraisal  of  Real 

Estate  and  Machinery 50,000.00 

Accrued  Pay  Roll   3,419.66 

Accrued   Commissions    5,619.68 

Reserved  for  Bad  Debts 18,903.87 

Dividend  No.  20 45,000.00 

Factory  Ledger  1,361,785.27 


137 


$  3,444,562.66    $  3,444,562.66 


The  factory  ledger  contains  the  following  accounts: 

Plant  i  Plant  2  Plant  3 

Insurance    $     1,506.09  $     310.00  $     350.21 

Inventories,  Raw  Materials,   1-1-12 92,970.00  7,480.21  19,899.76 

Inventories,  Finished  Material,  1-1-12..   117,981.56  1,199.58  23,027.66 

Inventories,    Supplies   Material,    I-I-I2. .       8,007.67  i,joi..V<  1,188.81 

Purchases  Material   381,582.98  38,236.12  24,530.58 

General  Factory  Expense   19.147.34  10,437.50  2,799.60 

Fuel  and  Power   4,181.60  1,321.22  1,272.76 

Engineering    Department    7,476.44 


138 


MICHIGAN  C.  P.  A.  MANUAL 


Drafting  Room  Dept.  Salaries 19,452.34  1,983.94 

Drafting  Room  Material  1,784.39  209.82 

Stock  Coke  Purchased  697.17 

Moulding  Sand  Purchased   1,596.30 

Core  Sand 218.04 

Non-Productive  Labor  32,780.08  8,115.95            9,621.14 

Productive   Labor    176,929.89  71,430.98          19,611.94 

Freight    26,120.92  3,079.08            1,923.27 

Installing  and  Erecting  Product 12,197.64 

Taxes    6,190.20  1,921.16               616.01 

Castings  delivered  by  Plant  2 135,006.64 

Motors  delivered  by  Plant  3 64,190.20 

Inventories,    Raw    Material,    12-31-12...  112,262.88  12,423.73          22,711.06 

Inventories,  Finished  Material,   12-31-12  148,693.85  4,127.28          30,3^1.62 

Inventories,   Supplies   Material,    12-31-12  9,522.92  1,550.86            1,041.74 

Compute  depreciation  as  follows : 

On  auto  trucks,  20%  on  $2,745.00,  10%  on  $3,000.00 ;  on  Build- 
ings, 5%;  on  Machinery,  10%  ;  on  Office  Furniture,  Plant  d) 
10%,  Plant  (2)  5%  ;  on  Restaurant  Equipment,  25%.  You  find 
bad  accounts  fully  provided  for  on  the  books.  Insurance  ex- 
pires December  315!,  noon.  Discount  on  banks  loans  paid  not 
accrued  $1,012.20.  Interest  on  borrowed  money  accrued,  not 
paid,  $576.08.  The  items  of  Insurance  and  Taxes  are  to  be 
considered  as  applying  solely  to  Manufacturing.  Prepare  a 
comprehensive  operating  statement  showing  results  of  each 
plant  and  entire  business  and  prove  same,  by  a  Balance  Sheet. 
Show  the  Surplus  account  in  analytical  form. 

2.  (15  Credits) 

Prepare  on  form  provided  a  true  report  of  the  business  of  the 
above  company  for  the  year  for  the  Internal  Revenue  Bureau. 

3.  (15  Credits) 

The  Internal  Revenue  Bureau  one  year  later,  objects  to  the  in- 
clusion among  expenses  in  the  report  of  all  charges  for  bad  ac- 
counts not  actually  written  off;  to  depreciation  on  account  of 
same  not  appearing  on  the  books  until  after  closing;  and  ren- 
ders a  demand  for  additional  tax.  State  the  amount  of  the 
extra  tax  demanded. 

4.  (20  Credits) 

The  Home  Savings  Bank  and  the  Wayne  County  Savings  Bank 
agree  to  consolidate ;  Capital  Stock,  $2,000,000.00.  To  facilitate 
the  merger  the  former  agrees  and  does  sell  its  remaining  shares 
of  authorized  capital  of  $1,000,000.00  at  $320.00,  and  charges 


MICH  1C  AX  C.  P.  A.  MANUAL 


'39 


off  Furniture  and  Fixtures.  The  Real  Estate  and  Banking 
Houses  of  both  institutions  are  reappraised  and  the  value  ad- 
justed on  the  new  books  at  $483,690.00  combined.  The  Wayne 
County  Bank  declares  and  pays  a  20%  dividend  payable  to 
stockholders  of  date.  The  accrued  interest  and  expenses  of 
each  institution  are  not  considered  except  as  they  may  have 
been  reserved  for.  Show  the  result  of  the  merger  in  statement 
form  ;  the  resultant  book  value  of  the  shares  of  the  combination 
and  the  necessary  journal  entries  to  effect  the  closing  of  the 
old  books  and  the  opening  of  the  new,  all  effective  April  4, 


Following  is  the  condition  of  each,  April  4,  1913: 


HOME  SAVINGS  BANK 


Resources 

Loans  &  Discounts,  viz : 

Commercial  Dept $3,255,014.52 

Savings  Dept 2,938,090.06 

Bonds,    Mtges.    and    Se- 
curities        4,986,142.82 

Overdrafts   131.03 

Banking  houses  356,657.00 

Furniture  and  fixtures..          10,320.96 

Other  real  estate 1,834.56 

Items  in  transit  10,841.21 

Reserve 

Commercial : 

Due  from  Banks  in  Re- 
serve Cities 486,627.29 

Exchanges    for   Clearing 

House  128,015.02 

U.    S.    and    Nat'l    Bank 

Currency 212,730.00 

Silver  coin    17,643.00 

Nickels  and  Cents  163.16 

Savings  : 

Due  from  Banks  in  Re- 
serve   cities    956,623.79 

U.  S.  and  Nat'l  Bank 

Currency   278,868.00 

Gold  coin 200,020.00 

Checks   and   other  cash 
items  .  616.81 


Liabilities 

Capital  Stock  paid  in...$ 

Surplus  Fund 

Undivided  Profits  net  . . 

Com.  Deposits  subject  to 
check     

Com.  Certificates  of 
Deposit    

Certified  Checks   

Cashier's  Checks  out- 
standing     

Due  to  Banks  and 
Bankers 

Savings  Deposits  (book 
accounts)     

Savings  Certificates  of 
Deposit 


996,400.00 
996,400.00 
103,931,53 

2,225,028.46 

36,898.95 
19,916.17 

22,252.97 

79,766.48 

9,113,276.86 

246,467.81 


$13.840.339.23 


$13,840,339-23 


140 


MICHIGAN  C.  P.  A.  MANUAL 


WAYNE  COUNTY  SAVINGS  BANK 


Resources 

Loans    &    Discounts....! 

Bonds,  Mtges.  and  Se- 
curities    

Banking  house   

Reserve 

U.  S.  Bonds 

Due  from  Banks  in  Re- 
serve Cities   

U.  S.  and  National  Bank 
Currency    

Gold  Coin 

Silver  Coin    

Nickels  and  Cents 

Checks    and   other    cash 
items  . 


4,125,487.49 

9,855,885.10 
125,000.00 

1,754,471.00 
30,451.00 

339,284.00 
334,600.00 

5,215.95 
17,072.31 

5-00 
$16,587,471.85 


Liabilities 
Capital  Stock  paid  in...* 

Surplus  Fund   

Undivided  Profits,  net.. 
Savings  Deposits  (book 

accounts)   

Savings    Certificates    of 

deposit 

Reserved   for  taxes,   in- 
terest,  etc 


1  1,000,000.00 

1,000,000.00 

541,008.49 

13,308,920.17 

708,144.24 

29,398.95 


$16,587,471-85 


5.    (20  Credits) 

The  Alpha  Quarries  Company  on  January  i,  1913,  call  you  in 
to  straighten  out  the  books.  You  find  the  following  items  on  the 
Trial  Balance : 

Coal   $       900.00 

Expense 500.00 

First  National  Bank  12,160.87 

Insurance   484.70 

Land  and  Improvements   100,000.00 

Machinery  and  Tools   22,143.70 

New  Plant 17,927.20 

New  Process   1,000.00 

Old  Plant   17,000.00 

Bond  Account  $  17,872.14 

Profit  and  Loss 69,909.99 

Repairs    750-°° 

Sand     1,890.00 

Stock  75,000.00 

Stripping   543-98 

J.  C.  Rollins  235.00 

D.  H.  Brill  8,500.00 

E.  J.  Brill  1,500.00 


MICHIGAN  C.  P.  A.  MANUAL 

C.  Austin 1,300.00 

American  Car  &  Foundry  Co 1,689.99 

R.  B.  Brill    2,238.00 

R.  B.  Brill   .- . .  5,000.00 

F.  Howell   3,081.59 

F.  Howell,  Special  10,000.00 

Accounts  Receivable   7,787.08 


141 


$189,707.12        $189,707.12 

It  develops  that  on  March  i,  1912,  a  first  mortgage  had  been 
placed  upon  the  entire  property  of  the  company  to  secure  a 
bond  issue  of  even  date  $100,000.00,  6%  interest  payable  semi- 
annually  after  January  i,  1913.-  The  Desirable  Trust  Co.  was 
the  trustee  under  the  mortgage  and  money  was  secured  and 
deposited  from  time  to  time  on  sale  of  the  bonds  as  follows : 

April    9-12  $7,000.00  $95.00  and  accrued  interest 

10-12  1,000.00  95.00  "                         " 

12-12  3,000.00  90.00  "          "              " 

13-12  3,000.00  87.50  " 

16-12  2,000.00  87.50  "                         " 

May       1-12  500.00  90.00  " 

25-12  7,000.00  90.00  " 

25-12  5,000.00  90.00  " 

28-12  14,500.00  90.00  " 

July     16-22  5,000.00  95.00  "          "              " 

Dec.      6-12  1,000.00  95-OO  " 

The  analysis  of  the  book  account  for  proceeds  from  bonds,  in- 
cluding the  above  sales,  appears  as  follows  : 

DEBIT 

April    4-12     Interest  paid  on  old  Mortgage $     22.36 

l/2%  Mortgage  tax 500.00 

Trustee's  fee 173-59 

27-12     Stationery  re  Bond  Issue  8.20 

May       1-12    Attorney's  Fees  550.00 

Dec.     30-12     Bond  Interest 2,450.00 

Trustee  account  handling  coupons 37-50 


$3,741-65 


142 


MICHIGAN  C.  P.  A.  MANUAL 

CREDIT 

April  18-12     Sale  of  $16,500  Bonds  and  Interest.. $  15,386.09 

Sept.    13-12     Interest  on  Deposit 181.50 

Dec.      6-12     Sale  of  Bonds  and  Interest 995-83 

Dec.     13-12     Sale  of  Bonds  4,862.50 

Interest  on  Deposits 181.50 

Interest  on  Deposits 6.37 


$  21,613.79 

A  stock  dividend  of  66  2-3%  was  declared  payable  as  of  April 
i,  1912,  coincident  with  an  increase  in  authorized  capital  from 
$75,000,00  to  $200,000.00.     Additional  stock  was   subscribed 
as  follows : 

R.  B.  Brill   ' $  5,000.00 

F.  Howell   10,000.00 

E.  J.  Brill  1,500.00 

D.  H.  Brill  8,500.00 

J.  C.  Rollins  7,000.00 

Geo.  S.  Smart  1,000.00 

The  Smart  item  was  paid  for  by  Engineering  services  in  con- 
nection with  the  new  plant. 

Formulate  journal  entries  in  adjustment  of  the  books  and  show 
corrected  Trial  Balance. 

6.    (20  Credits) 

Under  Section  22  of  the  Workingmen's  Compensation  Law 
parties  agree  to  liquidate  the  liability  for  a  claim  calling  -for  the 
payment  of  ten  dollars  per  week  indemnity  to  an  employee  for 
five  weeks.  State  the  amount  which  should  be  paid  as  a  lump 
sum  and  show  method  of  computing  same.  The  law  reads  as 
follows : 

"Whenever  any  weekly  payment  has  been  continued  for  not  less 
than  six  months,  the  liability  therefor  may  be  redeemed  by  the 
payment  of  a  lump  sum  agreement  of  the  parties,  subject  to  the 
approval  of  the  industrial  accident  board,  and  said  board  may 
at  any  time  direct  in  any  case,  if  special  circumstances  be  found 
which  in  its  judgment  require  the  same,  that  the  deferred  pay- 
ments be  computed  on  the  present  worth  thereof  at  five  per 
cent  per  annum  to  one  or  more  lump  sum  payments,  and  that 
such  payments  shall  be  made  by  the  employer  or  the  insurance 
company  carrying  such  risk,  or  commissioner  of  insurance,  as 
the  case  may  be." 


MICHIGAN  C.  P.  A.  MANUAL  143 

PRACTICAL  ACCOUNTING 

Friday,  December  26,  1913,  1:30  P.  M.  to  6:30  P.  M. 
First  two  and  two  of  the  last  four  problems  required  to  be  answered. 


I.     (25  Credits) 

A  proposed  merger  of  four  manufacturing  companies  involves 
combined  Assets  and  Liabilities  as  follows : 

Cash  in  Bank $       14,479.00 

Reserve  for  Bad  Debts 34,050.00 

Good-will  and  Patents   293,132.00 

Reserve     for     depreciation     of     Good-will     and 

Patents 159,849.00 

Reserved  for  Corporation  Taxes 5,000.00 

Dividends  accrued  on  Preferred  Stock 875.00 

Pay  roll  accrued 44,893.00 

Buildings  332,637.00 

Bills   Receivable — Customers    2,333.00 

Invested  in  Notes  of  other  Corporations 190,129.00 

Accrued  interest  on  Notes  of  other  Corporations  2,000.00 

Accounts  Receivable   345,478.00 

Inventories    1,471,201.00 

Sundry  debtors  29,191.00 

Reserve  for  Depreciation  of  Plant 346,144.00 

Securities   owned    14,552.00 

Reserved  for  loss  on  Securities  Owned  1,455.00 

Real   Estate    46,075.00 

Deferred  charges  to  future  operation  9,35o.oo 

Accounts    Payable    176.888.00 

Machinery  and  Equipment   862,920.00 

Unclaimed  Pay   728.00 

Furniture  and  Fixtures   27,762.00 

The  Consolidated  Tool  Company  is  incorporated  under  the 
Michigan  laws  to  take  over  the  business  of  the  four  companies. 
Authorized  capital,  Preferred  $500,000.00,  Common  $1,000,- 
ooo.oo,  par  value  of  shares  $100.00  each.  It  is  arranged  that 
the  minimum  number  of  share  holders  subscribe  and  pay  in 
cash  one  share  each  of  common  to  effect  the  incorporation,  and 
that  the  remaining  shares  be  subscribed  by  and  issued  to  the 
Peninsular  Trust  Company  to  be  divided  under  agreement 


144 


MICHIGAN  C.  P.  A.  MANUAL 

among  the  stockholders  of  the  old  companies.  Co-incidently 
an  issue  of  5%  First  Mortgage  Bonds  is  made  in  amount  of 
$1,500,000.00  of  which  $125,000.00  are  retained  in  the  Treas- 
ury. Reorganization  expenses  paid  out  of  the  funds  of  the 
company,  $10,250.00. 

1 i )  You  are  asked  to  make  the  opening  entries  of  the  Con- 
solidated Tool  Company. 

(2)  Exhibit  the  statement  of  condition. 

(25  Credits) 

Determine  from  the  following  particulars  the  book  balances  of 
Plant  B  of  the  United  Finishing  Company,  January  i,  1913,  and 
raise  intermediate  accounts.  All  purchases  are  made  by  the 
main  office  as  well  as  payments  of  wages,  expenses,  etc.  Sales 
are  made  direct  and  collections  are  remitted  to  the  main  office 
in  the  same  form  as  received.  The  operations  during  the  year 
1913  were  as  follows: 

Raw  Material  and  Supplies  purchased   $320,000  oo 

Wages  accrued  and  paid 125,000  oo 

Expenses  distributed  to  operations  70,000,00 

Expenses  accrued  and  paid  75,000.00 

Charge  Sales   425,000.00 

Cash  Sales   500.00 

Cost  of  finished  product • 400,000.00 

Cost  of  sales   380,000.00 

Allowances  to  customers 5,000.00 

Collections  from  charge  customers   410,000.00 

Raw  material  entered  manufacture 300,000.00 

The  following  balances  appear  on  closing : 

Inventory  (raw)   25,000.00 

Imprest  Cash   1,000.00 

Accrued  Payroll  Liability   2,000.00 

Inventory  in  Process 142,000.00 

Expenses  not  distributed  to  operating 15,000.00 

Accounts    Receivable — Good    70,000.00 

Accounts  Receivable — Doubtful 5,000.00 

Inventory  (finished) 34,500.00 

Reserved  for  Bad  Debts 5,000.00 

Surplus    20,500.00 


MICHIGAN  C.  P.  A.  MANUAL 


145 


3.  (25  Credits) 

The  Star  Department  Store  organized  January  i,  1911,  suffers 
a  complete  fire  loss  just  before  inventory  December  31,  1913. 
The  books  disclose  the  following  facts : 

Dec.  31-11  Dec.  31-12  Dec.  31-13 

Inventory  beginning    $  44,244.04  $  51,894.68  $  50,396.40 

Purchases   during  year    171, 133.33  173,478.81  157,188.09 

Allowances  on  Purchases   11,900.12  15,182.62  8,293.54 

Sales 197,474.49  209,397.00  195,937.98 

Allowances  on  sales 4,294.37  4,594.50  5,179.19 

Advertising    3,487-39  3,33445  2,987.56 

Salaries 8,295.92  9,196.72  9,196.72 

Wages   16,684.30  16,628.75  17,531.22 

Delivery    567-34  567.38  1,053-34 

Depreciation  of  Furniture  169.31  3/2.92  112.94 

Stationery  and  Printing 282.40  309.30  300.00 

Gas  75.09  45.55  62.02 

Rent    5,350.oo  5,400.00  5,400.00 

Insurance   927.15  856.42  770.40 

Interest     1,571.02  1,506.89  1,695.80 

Light    612.53  56740  525.06 

Water    29.21  28.51  27.63 

Taxes   438.80  597-OO  891.07 

Telephone    33.75  52.27  54.00 

General 2,041.30  3,343-37  2,581.32 

Traveling    352-94  351-93  278.28 

Furn.  and  Fix.  Depreciated   9,000.00  9,500.00  10,500.00 

You  are  asked  by  the  appraisers : 

(1)  To  determine  the  value  of  assets  destroyed. 

(2)  Arrive  at  correct  amounts  to  effect  a  complete  adjustment 
under  the  following  concurrent  policies  containing  the  80% 
co-insurance  clause : 

Home  Insurance  Co $10,000.00  $2,000.00 

Glen  Falls  Insurance  Co 15,000.00  3,000.00 

Globe  Insurance  Co 5,000.00  1,000.00 

Equitable  Insurance  Co 10,000.00  2,000.00 

(3)  Assuming  the    property    loss    to    have    been    50%  what 
amounts  would  have  been  the  proper  adjustments? 

4.  (25  Credits) 

\Yhat  must  be  paid  for  a  bond  $1,000.00  par  maturing  in  ten 
years  with  4%  interest  payable  semi-annually  to  net  the  pur- 
chaser 6%  ?  Show  method. 


146 


MICHIGAN  C.  P.  A.  MANUAL 


5.    (25  Credits) 

You  are  asked  by  an  individual  (married)  to  prepare  a  form 
of  return  for  making  application  for  deductions  as  provided  by 
the  federal  income  tax  law  of  October  3,  1913. 

You  find  his  income  and  expenditures  for  year  ending  December 

31,  1913,  to  be  as  follows: 

Expenses  Income 

Salary    $10,000.00 

Interest  on  Real  Estate  Mortgage...  960.00 

Dividends  U.  S.  Steel  Corporation. . .  1,200.00 

Rentals  . . .' 2,200.00 

Interest,  Bonds  U.  S.  Steel  Corp'n. . .  1,000.00 

Interest,  U.  S.  Government  33 2,400.00 

Interest,  City  of  Detroit  45 4,000.00 

Gain  Sale  of  Real  Estate 500.00 

Inheritance,      Stock      Penna.      Ry. 

Co,  Par 25,000.00 

Life  Insurance  Benefit ,  5,000.00 

Special  fee  as  commissioner  of  estate  500.00 

Allowance  to  wife  $  2,000.00 

Household  expenses,  including  rent..     9,620.00 
Fire  Loss,  Tenement  property   (net)        650.00 

Interest  Bank  Loans  5,400.00 

•  Life  Insurance  Premiums   600.00 

Taxes,  City,  State  and  County 220.00 

Automobile   2,500.00 

Charitable  donations   400.00 

Losses  Stock  Exchange  operations..     4,400.00 

Losses  Bad  Debts 1,750.00 

Taxes — Special  Paving 50.00 

Depreciation  of  Buildings   1,000.00 

Prepare  in  brief  statement  form  your  understanding  of  the 
effect  of  the  law  in  relation  to  this  individual's  affairs. 


6.    (25  Credits) 

The  Trial  Balance  of  the  Yellow  Pine  Timber  Co.,  on  January 
i,  1912,  was  as  follows: 

Cash    ...'. $    2,618.03 

Accounts  Receivable  21,111.17 

Inventory    36,133.32 

Unexpired  Insurance 559-44 

Plant  and  Equipment   352,I09-75 

Timber  and  Lands  55^,539-31 


MICHIGAN  C.  P.  A.  MANUAL 

Preferred  Claims   $  37,01 1.99 

First  Mortgage  Bonds,  6s  212,500.00 

Bond  Interest  Accrued 4,533.24 

Unsecured  Creditors   64,471.64 

Capital  Stock  400,000.00 

Surplus    245,554.15 


147 


$964,071.02        $964,071.02 

Not  being  able  to  meet  their  current  obligations,  the  Commer- 
cial Trust  Co.  was  appointed  Receiver  on  January  i,  1912. 

The  transactions  under  the  receivership  for  the  year  follow- 
ing are  hereby  summarized : 

Purchased  Logs   $9,646.22 

(Half  of  which  were  paid  for  in  cash  and  the 
balance  on  credit.) 

Operating  Expenses $202,972.81 

Commissions    4,214.14 

Demurrage    326.00 

Freight,  Inward   5^5-53 

General  Expense   4,837.40 

Salaries    12,000.00 

Shipping  Expense 13,574.10 

Taxes  1,421.00 

All  paid  for  in  cash. 

Allowance  for  stumpage  cut  amounting  to  $50,000.00  was  cred- 
ited to  timber  account.  Interest  on  bonds  to  December  31,  1912, 
was  paid  in  full  and  the  outstanding  bonds  reduced  to  $200,- 
ooo.oo,  December  31,  1912,  at  101.  Sales  amounted  to  $450,- 
ooo.oo  gross,  of  which  $300,000.00  was  received  in  cash. 

Freight  allowance  to  customers  $70,510.00 

Discounts  received  500.00 

Discounts  allowed 556.33 

Profit  from  Commissary  5,000.00 

Sundry  Income   3,500.00 

The  accounts  receivable  of  January  I,  1912,  realized  $20,000.00 
net.  Preferred  claims  were  paid  in  full.  Depreciation  of  $3,- 
500.00  was  allowed  on  plant  and  equipment.  Unexpired  insur- 
ance on  December  31,  1912,  amounted  to  $125.00.  Inventories, 
$40,000.00. 

Prepare  Realization  and  Liquidation  Account,  Cash  Account  and 
Balance  Sheet  December  31,  1912. 


148  MICHIGAN  C.  P.  A.  MANUAL 

PRACTICAL  ACCOUNTING 


Friday,  June  26,  1914,  from  i  130  P.  M.  to  6:30  P.  M. 
First  three  required  and  one  of  the  last  two. 


The  Trial  Balance  of  the  National  Manufacturing  Company, 
as  at  December  31,  1913,  before  closing  books,  is  given  below. 
In  addition  to  the  information  obtainable  from  the  trial  bal- 
ance, the  following  data  must  be  taken  into  consideration  in 
closing : 

Insurance  unexpired  apportioned  y2  and  2  in  trial 
balance  order $     250.00 

Inventory  Mdse.  December  31,  1913 90,000.00 

Inventory  Tools,  December  31,  1913 4,500.00 

Inventory  Patterns  December  31,  1913 4.000.00 

Depreciation  on  Buildings  at  rate  of  2l/2% 

Depreciation  on  Machinery  at  rate  of  10% 

Depreciation  on  Patents  at  rate  of  6% 

Depreciation  on  Office  Furniture  &  Fixtures  at  rate  of  10% 

Half  of  one  per  cent  of  net  sales  reserved  for  bad  debts. 

As  the  company  owns  its  own  plant,  its  custom  is  to  treat  invest- 
ment in  real  estate  and  buildings  as  a  separate  investment  from 
which  it  expects  to  receive  $%,  and  to  charge  cost  of  main- 
tenance, plus  interest  on  investment,  to  the  cost  of  manufac- 
turing as  rent. 
Prepare  closing  entries  and  following  statements : 

1.  Balance  Sheet,  January  i,  1914. 

2.  Real  Estate  Operating  Account. 

3.  Manufacturing,  Trading,  and  Profit  and  Loss  Accounts. 

4.  Surplus  Account. 

No  deferred  charges,  other  than  insurance  premium,  are  to  be 
considered. 

NATIONAL  MANUFACTURING  COMPANY 
TRIAL  BALANCE,  DECEMBER  31,  1913 

Real   Estate    $      25,000.00 

Buildings 50,000.00 

Machinery  40,000.00 

Tools    7,000.00 

Patents 25,000.00 

Patterns   5,000.00 

Merchandise  Purchases  420,000.00 

Bills  Receivable    1,500.00 


MICHIGAN  C.  P.  A.  MANUAL 

Accounts  Receivable   250,000.00 

Insurance — Buildings    300.00 

Insurance — Machinery   and   Tools  500.00 

Insurance — Merchandise    650.00 

Taxes— Real  Estate  1,500.00 

Interest— General   7,000.00 

Bond  Interest   2,500.00 

Cash  in  Banks  45,000.™ 

Labor— Productive  310,000.00 

Labor — Non-Productive    55,000.00 

Power    21,000.00. 

Repairs  to  Buildings   950.00 

Repairs  to  Machinery  1,310.00 

Employer's   liability   Insurance...  4.000.00 

Office   Payroll    18,000.00 

Inventory  Mdse.,  Jan.  I,   1913 75,000.00 

Return   Sales    41,000.00 

Factory  Expenses  3,010.00 

Merchandise  Sales  $  1,090,500.00 

Allowances    $  10,900.00 

Office  Furniture  and  Fixtures   . . .  5,700.00 

Salaries  to  Officers 15,000.00 

Postage  2,000.00 

Telephone  and  Telegraph 1,800.00 

Taxes— Personal  Property  1,000.00 

Collection  and  Exchange  700.00 

Stationery  and   Printing    3,050.00 

Freight   In    23,000.00 

Freight  Out   11,000.00 

Cartage  and  Express    3,750.00 

Bonding  of  Employees   (Office)  . .  250.00 

Traveling    Expenses — Salesmen..  17,500.00 

Salesmen's  Salaries  and  Com 40,000.00 

Bad  Debts 7,400.00 

Bond  Issue   40,000.00 

Bills  Payable   100,000.00 

Accounts  Payable  43,000.00 

Surplus    39,020.00 

.Capital  Stock  200,000.00 

Reserves — 

Building 5,250.00 

Machinery    12,500.00 

Patents 7.500.00 

Office  Furniture  and  Fixtures..  2,500.00 

Bad   Debts    .  13.000.00 


149 


$  1,553,270.00    $  1,553,270.00 


1  50 


MICHIGAN  C.  P.  A.  MANUAL 


2.  By  reason  of  the  death  of  its  founder,  the  J.  E.  Smith  Wire  & 
Iron  Company  organized  in  1885  is  obliged  to  reorganize  or 
consolidate  with  your  client,  a  competitor  concern.  A  tentative 
offer  is  made  by  the  attorney  for  the  heirs.  The  following  facts 
are  issued  by  the  attorney,  together  with  accompanying  proposi- 
tion: 

Assets 

Cash  on  Hand  and  in  Bank.$       920.00 
Accounts  Receivable   .....     89,000.00 

Bills  Receivable  ......  ....     30,000.00 

Merchandise   .............   150,000.00 


Plant,  Machinery  and  Equip- 
ment  ...................  250,000.00 

Deferred  Charges  ........          880.00 


Liabilities 
Wages  Payable   ..........  $    4,000.00 

Accts.  Payable  ...........     75,000.00 

Bills  Payable   ............    115,000.00 

Accrued  Charges  ..........     1,590.00 

Capital    ..................    100,000.00 

Surplus  ..  .................  225,210.00 


$520,800.00 

Annual  Sales   $500,000.00 

Expenses    450,000.00 


$520,800.00 


Annual  Profits   $  50,000.00 

Attorney  offers  to  sell  for  the  amount  of  the  net  earnings  capi- 
talized at  5%. 

On  examination  you  find  the  following  record  and  facts : 

Net  Sales     Cost  of  Sales  Selling  Exp.  Admin.  Exp.  Net  Profit 

1909    $350,000.00      $200,000.00      $50,000.00      $40,000.00      $60,000.00 

1910  400,000.00  250,000.00  60,000.00  45,000.00  45,000.00 

1911  450,000,00  300,000.00  70,000.00  50,000.00  30,000.00 

1912  550,000.00  400,000.00  80,000.00  55,000.00  15,000.00 

1913  500,000.00  360,000.00  75,000.00  15,000.00  50,000.00 

Analysis  of  the  expenses  shows  that  the  various  elements  are 
regular  except  that  the  proprietor's  salary  which  had  appeared 
for  several  years  at  $25,000.00  had  not  been  credited  in  1913, 
but  appeared  as  a  charge  among  Accounts  Receivable.  Other 
accounts  receivable  warranted  a  scaling  down  on  account  of 
doubtful  debts  extending  over  three  years  respectively:  191 1, 
$6,000.00;  1912,  $9,000.00;  1913,  $10,000.00;  total,  $25,000.00. 
Bills  Receivable  were  uncollectable  to  the  amount  of:  1911, 
$3,000.00;  1912,  $2,000.00;  1913,  $4,000.00. 


MICHIGAN  C.  P.  A.  MANUAL  151 

Inventory  was  found  to  include  obsolete  and  defective  stock  to 
the  amount  of  $20,000.00,  distributable  over  the  5  years.  Liabili- 
ties on  account  of  Merchandise  purchased  and  .inventoried,  but 
omitted  from  the  books,  $10,000.00.  You  find  that  no  appraisal 
has  ever  been  made  of  the  plant  and  equipment,  and  no  depre- 
ciation charged  off  during  the  history  of  the  business,  although 
the  plant  is  in  good  repair. 

Prepare  a  report  to  your  client  making  such  recommendations  as 
you  consider  feasible,  and  containing  such  exposition  of  facts 
by  way  of  Exhibits  as  you  consider  necessary  to  convince. 

3.  What  methods  would  you  adopt  to  determine  the  value  of  stock 
or  merchandise  on  hand  at  an  odd  date  in  case  of  total  loss  by 
fire  in  a  manufacturing  business,  under  each  of  the  following 
several  conditions : 

1.  Inventories  taken  in  detail  annually  on  closing  only? 

2.  Running  inventories  kept  on  cards  by  quantities  only,   ex- 
cept as  to  work  in  progress  and  under  a  system  of  estimating 
costs  for  finished  product? 

3.  Running  inventories  kept  on  ledgers  according  to  true  cost 
in  value  and  quantities,  but  not  posted  for  3  months  back, 
and  posting  media  destroyed  though  general  books  intact? 

4.  The  Standard  Trust  Company  is  appointed  by  the  Peninsular 
Mining  Company  as  Trustee  of  a  Bond  Issue,  aggregating  $i,- 
000,000.00,  all  Bonds  of  $1,000.00  denomination,  rate  5%  and 
bearing  date  January  i,  1914.     Bonds  mature  in  ten  equal  an- 
nual installments,  beginning  January  i,  1917,  unless  previously 
converted  or  retired. 

The  issue  is  not  purchased  by  the  Trustee,  but  is  sold  through 
Emory  Davis  &  Company,  Brokers,  the  Company  realizing  90% 
and  accrued  interest  less  the  cost  of  appraisal  of  property, 
printing,  trustees'  expenses,  etc.,  amounting  to  $9,310.80. 

The  entire  issue  was  taken  over,  and  paid  for  by  the  brokers 
on  January  20,  1914. 

Among  other  things  the  trust  deed  provides: 

Bonds  convertible  on  any  interest  date  for  6%  preferred 
stock  at  90%,  at  option  of  holder. 

Bonds  may  be  retired  out  of  surplus  on  any  interest  date 
at  103,  at  option  of  company. 


152  All  CHI  CAN  C.  P.  A.  MANUAL 

Sinking  fund  for  payment  of  principal  only  to  be  based  on 
production  of  ore  at  ten  cents  per  ton. 

Trustee  to  charge  %%  of  Principal  on  issue,  and  %%  on 
coupons. 

Interest  payable  January  ist  and  July  ist. 

The  company's  production  for  three    years    is  assumed  to  be, 
for  the  purpose  of  this  problem,  1,000,000  tons  per  year, 

January  i,   1916 — $100,000.00  are  converted  to  preferred 

stock. 

January  I,  1917 — $200,000.00  are  redeemed  at  103. 
Formulate  all  necessary  entries  for  books  of : 

(a)  Standard  Trust  Company. 

(b)  Peninsular  Mining  Company. 

(c)  Emory  Davis  &  Company. 

which  may  be  occasioned  by  the  above  incidents  to  and  in- 
cluding January  i,  1917. 

5.    The  Estate  of  Hiram  West,  of  which  you  are  appointed  admin- 
istrator, is  appraised  as  follows  on  January  10,  1913 : 

Shares  of  First  National  Bank  $100,000,00 

500 — par  $100.00  value. 

Shares  of  United  Mercantile  Co 6,000.00 

60 — par  value  $100.00  value. 

Bonds  of  Southern  Lumber  Corporation 4,500.00 

5 — par  $1,000.60  value. 

Real  Estate : . 

Residence  168  F  Street 5,500.00 

Vacant  2  Lots  E  Street  2,000.00 

Cash  on  person  82.00 

Cash  in  Bank — Savings  Acct $6,220.00 

Accrued  Int 31.10      6,251.10 

Household  Furniture,  Jewelry,  etc.,  as  per  Schedule       1,000.00 
Automobile   .  500.00 


$125,833.10 


MICHIGAN  C.  P.  A.  MANUAL 


The  following  transactions  appear  from  your  Cash  Book : 


153 


191 

Jan. 

Receipts 

3 
10  Balance    $ 

l       82.00 

Disbursemen  ts 
Jan.   20  Letters  Test'y  5 
Jan.    28  Claims  allowed  ' 

j>        i.oo 

Feb. 

i  First  Nat.  Bk.  Div. 

2,000.00 

Groceries    

2C  OO 

Feb. 

2.  United      Mer.  Co. 

Gas   Bill    

380 

Div.    

300.00 

Widow's   Allow- 

Mar 

i  Southern    Lbr     Co. 

ance    Jan 

150  oo 

Int  

30000 

Coal    .... 

8300 

May 

10  First  Nat.  Bk.  Div. 

2,000.00 

Funeral  Rxp 

-3CQ  OO 

June 

15  Savings    Acct.    Int. 

83.30 

Physician    

200  OO 

June 
July 
Aug. 

15  Sale  of  Residence. 
10  First  Nat.  Bk.  Div. 
2  United     Mer.     Co. 
Div    . 

6,500.00 

2,000.00 

300  oo 

Funeral  Notice  .  .  . 
Commi|ssions     
Administrator's 
Bond 

3-20 
150.00 

oc  no 

Aug. 
Sept. 

10  First  Nat.  Bk.  Div. 
i  Southern  Lbr.  Co. 

2,000.00 

Feb.  28  Widow's    Allow- 
ance    

I5OOO 

Int  

30000 

Mar  31  Widow's    Allow- 

Nov. 

10  First  Nat.  Bk.  Div. 

2,000.00 

ance   

I5OOO 

Jec. 
Dec. 

15  Savings   Acct.   Int. 
15  Sale  lots  

83.30 
1,80000 

Apr.  30  Widow's   Allow- 
ance    

15000 

May  31  Widow's    Allow- 
ance      

I5OOO 

•* 

June  15  Commissions      on 
Sale  of  Property 
Legal  Expenses  
June  30  Widow's  Allow.... 
July   31  Widow's  Allow.... 
Aug.  31  Widow's  Allow  
Sept.  30  Widow's  Allow... 
Oct.  31   Widow's  Allow... 
Nov.  30  Widow's  Allow  
Dec.  15  Commission     Sale 
of  Lots  

I9S.OO 
180.00 
150.00 
150.00 
150.00 
150.00 
150.00 
150.00 

90  oo 

Dec.  31  Widow's    Allow- 
ance   .  .  . 

150  oo 

Balance  

16,642.60 

$19,748.60 


$19,748.60 


Prepare  first  and  final  account,  computing  administrator's  fees 
at  statutory  rate  in  Michigan,  and  arrange  a  division  among 
three  heirs  in  equal  amounts. 


1 54  MICHIGAN  C.  P.  A.  MANUAL 

PRACTICAL  ACCOUNTING 


Wednesday,  December  23,  1914,  from  8:00  A.  M.  to  i  :oo  P.  M. 


Problems  i,  2,  3,  and  one  of  last  two  required.   Ten  credits  allowed 
for  neatness  and  general  appearance. 


i.   (25  Credits) 

The  General  Manufacturing  Company's  books  show  the  follow- 
ing Assets  and  Liabilities,  January  I,  1914: 

Real  Estate  and  Buildings - $  1,190,000.00 

Machinery,  Tools  and  Equipment  1,430,000.00 

Office  Furniture  and  Fixtures 8,160.00 

Reserve  for  Depreciation 157,000.00 

Inventory    733,090.00 

Bank  Balance  68,000.00 

Imprest  Cash 1,330.00 

Non-Negotiable  Notes  Receivable 35,000.00 

Bills  Receivable  717.00 

Accounts  Receivable   289,256.00 

Prepaid  Expenses 9,279.00 

Investments     9,500.00 

Patents    1,276,000.00 

Preferred  Stock  1,000,000.00 

Common  Stock   2,600,000.00 

First  Mortgage  Bonds,  5%   120,000.00 

Second  Mortgage  Bonds,  6% 398,000.00 

Debenture  Bonds,  5%   153,000.00 

Bills  Payable,  Banks 545,000.00 

Bills  Payable,  Trade   57,000.90 

Accounts  Payable  108.000.00 

Accrued  Pay  Roll  30,000.00 

Accrued  Bond  Interest  9,000.00 

Bills  Receivable,  Discounted  23,623.00 

The  following  aggregate  entries  are  found  to  have  affected  the 
respective  accounts  during  the  current  year : 

Purchase  of  Material  and  Supplies $  306,000.00 

Pay  Rolls    312,000.00 

Factory  Expenses   18,000.00 

Freight  and  Express  (Inbound)    1,000.00 


MICHIGAN  C.  P.  A.  MANUAL  155 

Administrative  Expenses   27,000.00 

Selling  Expense    8,000.00 

Interest  on  Bills  Payable 22,000.00 

Miscellaneous   Interest   Expense    500.00 

Interest   Received    1,000.00 

Sales    882,000.00 

Returns  and  Allowances   4,000.00 

Bad  Debts  and  Special  Allowances 32,000.00 

Freight  on  Goods  Sold 2,000.00 

Machinery,  Tools  and  Equipment  (Additions)  . .  37,53O.oo 

Office  Furniture  and  Fixtures  (Additions)   ....  800.00 

Machinery,  Tools  and  Equipment  Sold 19,000.00 

Patents    (Additions)    10,000.00 

The  following  net  changes  occur  in  the  respective  accounts  dur- 
ing the  year : 

Debit  Credit 

Reserve  for  Depreciation $       825.00 

Bank  Balances    $  25,000.00 

Non-Negotiable  Notes  L.jeivable 5,000.00 

Imprest  Cash 200.00 

Bills  Receivable 2,000.00 

Accounts  Receivable  35,000.00 

Prepaid  Expenses    1,000.00 

Bills  Payable,  Banks  67,700.00 

Bills  Payable,  Trade  57,000.00 

Accounts   Payable    67,000.00 

Accrued  Bond  Interest 6,000.00 

Accrued  Pay  Roll  8,000.00 

Bills  Receivable  Discounted  5,000.00 

Inventory    50,000.00 

You  find  that  the  entire  interest  on  First  and  Second  Mortgage 
Bonds,  amounting  to  $29,880.00,  has  been  added  to  Machinery 
and  Tools,  and  interest  on  Debenture  Bonds,  amounting  to  $7,- 
650.00,  has  been  charged  to  Administrative  Expenses. 
Prepare  a  Balance  Sheet,  Manufacturing,  Trading  and  Profit 
and  Loss  Account  for  presentation  at  the  close  of  the  year, 
making  reasonable  adjustments  for  Depreciation  considerations 
and  application  of  interest. 


156 


MICHIGAN  C.  P.  A.  MANUAL 


2.  (25  Credits) 

The  following  is  a  Trial  Balance  of  the  Advance  Grocery  Com- 
pany at  close  of  business,  December  31,  1913  : 

Debit  Credit 

Cash  on  Hand   $       387.50 

Cash  in  Bank   7,893.50 

Notes  Receivable   12,700.00 

Accounts  Receivable   80,000.00 

Sundry  Accounts   1,500.00 

Merchandise  Account  .  . . ." $172,500.00 

Suspense  Account    7,570.00 

Real  Estate   150,000.00 

Buildings 75,000.00 

Good  Will 40,000.00 

Rent    2,750.00 

Taxes   2,700.00 

Insurance    1,800.00 

.     Pay  Roll • . . .  15,720.00 

General  Expense  20,680.00 

Accounts   Payable    50,750.00 

Land  Contract   20,700.00 

Capital  Stock  148,250.00 

Surplus    21,001.00 


3- 


$415,951.00    $415,951.00 

The  books  of  original  entry  include  a  Purchase  Record  in  which 
entry  is  made  for  each  purchase  invoice,  and  from  which  post- 
ings are  made  to  the  Accounts  Payable  Ledger,  a  Cash  Received 
Record,  Check  Register,  and  Journal. 

From  the  above  information  prepare  a  plan  of  audit  to  be  used 
by  a  junior  accountant  in  conducting  an  audit  of  the  books. 
The  business  was  incorporated  January  i,  1913,  and  the  audit 
is  to  cover  the  operations  from  the  inception  of  the  business. 

(20  Credits) 

The  District  Machine  Company  operates  a  factory  cost  system 
controlled  by  a  double  entry  factory  ledger  the  opening  bal- 
ances in  which  appear  January  I,  1914,  in  part  as  follows: 

Undistributed  Burden $  15,000.00 

Raw   Material    100,000.00 

Work  in  Process 250,000.00 

Finished  Product  • 98,000.00 

Accrued    Pay   Roll    7,000.00 


MICHIGAN  C.  P.  A.  MANUAL 


157 


The  following  represent  the  total  of  the  operations  for  given 
period : 

Raw  Material  Purchased $225,000.00 

Pay  Rolls   155,000.00 

Productive  Labor  Distribution   150,000.00 

Department   Overhead    315,000.00 

Raw  Material  Consumed 250,000.00 

Product  at  Cost  825,000.00 

Department  Overhead  Distributed  325,000.00 

Sales  at  Cost  905,000.00 

Raise  the  necessary  controlling  accounts  to  show  the  ledger 
record  of  the  above  operations  together  with  trial  balance  at  the 
end  of  the  period. 

4.  (20  Credits) 

What  amount,  including  interest,  must  be  set  aside  annually 
to  provide  a  sinking  fund  sufficient  to  retire  an  issue  of  bonds 
amounting  to  $100,000.00  originally  sold  at  90,  interest  payable 
semi-annually  at  6%  and  maturing  in  ten  equal  annual  install- 
ments after  the  fifth  year?  Show  method. 

5.  (20  Credits) 

ACME  MANUFACTURING  COMPANY 
TRIAL  BALANCE,  DECEMBER  31,  1914 

Cash  on  Hand  and  in  Bank $  5,000.00 

Notes  Receivable   7,500.00 

Accounts  Receivable  30,500.00 

Inventory  Jan.  i,  1914 115,000.00 

Materials  Purchased  285,000.00 

Productive  Labor,  Dept.  A 100,000.00 

Productive  Labor,  Dept.  B 50,000.00 

Manufacturing  Exp.,  Dept.  A....  67,000.00 

Manufacturing  Exp.,  Dept.  B....  46,000.00 

General  Mfg.  Expense  12,000.00 

Selling  and  Distributing  Expense  17,000.00 

Administrative   Expense    28,500.00 

Cash  Discount  Allowed  4,500.00 

Cash  Discount  Taken $        7,500.00 

Gross  Sales,  Dept.  A 412,000.00 

Gross  Sales,  Dept.  B 328,000.00 

Returns  and  Allowances,  Dept.  A  6,800.00 

Returns  and  Allowances,  Dept.  B  3,200.00 

Real  Estate   200,000.00 

Buildings,   Dept.   A 100,000.00 


158  MICHIGAN  C.  P.  A.  MANUAL 

Buildings,  Dept.  B  50,000.00 

Mach'y  and  Equipment,  Dept.  A .  .  47,500.00 
Mach'y  and  Equipment,  Dept.  B.  .  32,500.00 
Office  Furniture  and  Fixtures....  5,000.00 

Prepaid  Insurance   420.00 

Prepaid  Taxes 780.00 

Accounts   Payable    18,750.00 

Notes  Payable  40,000.00 

Accrued  Pay  Rolls   8,000.00 

Mortgage  Payable   75,000.00 

Reserve  for  Bad  Accounts. .  4,950.00 

Capital  Stock — Authorized  and 

Issued 300,000.00 

Surplus    20,000.00 

$  1,214,200.00  $  1,214,200.00 
Inventories : 

Dec.  31,  1913  Dec.  31, 1914 

Raw  Stock $35,000.00  $20,000.00 

Work  in  Progress,  Dept.  A 60,000.00  70,000.00 

Work  in  Progress,  Dept.  B 20,000.00  10,000.00 

Raw  stock  was  issued  to  departments  during  the  year  in  the 
following  percentages : 

To  Dept.  A,  2-3.  To  Dept.  B,  1-3. 

No  credit  was  given  to  the  raw  stock  account. 

It  was  found  that  prior  to  January  i,  1914,  depreciation  was 

credited  direct  to  the  capital  assets  as  follows  : 

Buildings,  Dept.  A $20,000.00 

Buildings,  Dept.  B  10,000.00 

Machinery  and  Equipment,  Dept.  A  . '. 15,000.00 

Machinery  and  Equipment,  Dept.  B 12,000.00 

Office  Furniture  and  Fixtures  2,000.00 

No  depreciation  has  been  included  in  the  current  year's  opera- 
tions, but  sufficient  reserve  has  been  created  for  bad  accounts. 
There  has  been  no  change  in  the  capital  asset  accounts  during 
the  current  year. 

Make  any  adjustments  you  deem  necessary,  covering  deprecia- 
tion prior  to  January  i,  1914,  and  provide  for  current  year's 
depreciation. 

Prepare  Departmental,  Trading,  and  Profit  and  Loss  Statements 
for  the  year  1914,  and  submit  Balance  Sheet  as  at  December 
31,  1914. 


MICHIGAN  C.  P.  A.  MANUAL  159 

PRACTICAL  ACCOUNTING 


Friday,  June  18,  1915,  from  i  :oo  P.  M.  to  6:00  P.  M. 


10  Credits  allowed  for  neatness  and  general  appearance. 


I.    (20  Credits) 

The  co-partnership  of  George  L.  Brown  &  Company  composed 
of  George  L.  Brown,  L.  J.  Henry  and  Fred  S.  Martin,  is  unable 
to  meet  its  current  obligations  and  arranges  a  composition  with 
creditors  whereby  the  latter  agree  to  accept  80%  of  their  claims 
without  interest.  A  .trustee,  Henry  S.  Smith,  is  appointed  Jan- 
uary i,  1915,  by  mutual  consent,  to  take  charge  of  the  business 
during  liquidation.  On  that  date  the  ledger  of  the  partners 
showed  the  following  balances:  Cash,  $105.00;  Accounts  Re- 
ceivable, $10,000.00;  Accounts  Payable,  $12,000.00;  Notes  Re- 
ceivable, $5,000.00;  Notes  Payable,  $5,000.00;  Bonds  (owned), 
$5,000.00;  Inventory,  $13,000.00;  Premium  on  bonds,  $150.00; 
Real  Estate,  $3,000.00;  George  L.  Brown,  $5,000.00;  L.  J.  Hen- 
ry, $6,605.00;  Fred  S.  Martin,  $7,650.00. 

The  trustee  continued  trading  for  six  months,  his  transactions 
summarized  being  as  follows:  purchases,  $8,000.00;  salaries, 
$2,000.00;  general  expenses,  $1,000.00;  all  paid  in  cash.  Sales, 
$24,000.00;  cost  of  sales,  $16,000.00;  cash  received  on  realiza- 
tion, $19,250.00;  cash  disbursed  in  liquidation,  $14,100.00;  cash 
received  in  trading  (sales),  $12,000.00;  cash  disbursed  in  trad- 
ing as  above,  $11,000.00. 

The  notes  receivable  realized  face  value,  accounts  receivable 
were  assigned  to  a  banker  at  10%  discount.  The  bonds  were 
sold  at  105  flat.  The  notes  payable  were  paid  as  agreed  and  the 
accounts  payable  were  liquidated  with  the  exception  of  one 
claim  of  $2,000.00  unsettled  pending  an  old  adjustment  for  dam- 
aged goods.  Inventory  at  end  of  six  months,  $5,000.00;  ex- 
penses of  trusteeship,  $2,100.00. 

Prepare  a  Realization  and  Liquidation  statement  to  show  the 
results  of  the  trustee's  handling  of  the  business,  a  Deficiency 
Account,  Cash  Account,  and  Balance  Sheet  at  termination. 

2.    (20  Credits) 

A  receiver  is  appointed  to  take  charge  of  the  Farm  Implements 
Company,  on  June  I,  1915,  and  employs  a  C.  P.  A.  to  deter- 


i6o 


MICHIGAN  C.  P.  A.  MANUAL 


mine  from  the  books  the  exact  condition  of  the  business.     He 

finds  the  books  to  show  the  following : 

Cash  on  Hand $  623.10 

Cash  on  Deposit  at  Reserve  Nat'l  Bank 34,000.00 

Notes  Receivable   95,000.00 

Notes  Receivable  Discounted  650,000.00 

Notes  Receivable  Assigned  to  Bank 100,000.00 

Accounts  Receivable  40,058.40 

Accounts  Receivable  Assigned  to  Bank 50,000.00 

Reserved  for  Losses  on  Notes  and  Accounts $      37,923.12 

Doubtful  Notes  and  Accounts  8,417.51 

Material  and  Supplies 239,516.75 

Branches,  Net  Advances  " 156,397.00 

Land,    Buildings   and   Equipment    705,742.34 

Reserve  for  Depr.  Buildings  and  Equipment •.  98,351.68 

Patterns,  Tools,  Etc 13,000.00 

Deferred  Charges    12,121.37 

Bills  Payable— Reserve  Nat'l  Bank  397,667.73 

Bills  Payable — Merchandise   45,033.45 

Bills  Payable — Equipment  Notes 40,000.00 

Accounts  Payable  67,152.98 

Accrued  Pay  Roll 5,000.00 

Accrued  Taxes  5,000.00 

Accrued  Interest  Bank  3,000.00 

Accrued  Interest  Sundry 2,340.20 

Accrued  Interest  Equipment  Notes  1,000.00 

Land  Contract  1,750.00 

Commission  Contingent  to  become  payable  to 

agents  when  customers'  notes  are  paid 1,506.43 

Dealers'  Deposits   5,000.00 

Capital — Preferred  Stock 500,000.00 

Capital — Common  Stock   .         600,000.00 

Surplus    394,150.88 

Subscription  Account  (Common  Stock)   100,000.00 


$  2,204,876.47     $  2,204,876.47 

The  accountant  finds  that  the  company  has  secured  its  line  of 
credit  at  the  Reserve  National  Bank,  on  filing-  one  of  the  usual 
.  forms  of  statement  for  securing  credit  at  National  Banks.  The 
Real  Estate  has  been  appraised  at  $100,000.00  as  to  land,  and 
$100,000.00  as  to  buildings  as  a  going  concern,  but  in  case  of 
liquidation  the  land  and  buildings  would  bring  only  $150,000.00. 
The  Machinery  and  Equipment  have  been  appraised  at  $400,- 
ooo.oo  as  a  going  concern,  and  $50,000.00  on  liquidation.  The 
Material  and  Supplies  are  worth  $239,516.75  as  a  going  concern 


MICHIGAN  C.  P.  A.  MANUAL  161 

and  $125,000.00  on  liquidation,  except  that  on  a  further  invest- 
ment of  $20,000.00  to  complete  the  manufacture  of  goods  in 
process  they  would  bring  $200,000.00. 

Examination  of  the  notes  and  accounts  receivable  discloses  that 
the  notes  will  show  a  shrinkage  of  $50,000.00  on  collection  and 
the  accounts  which  include  credit  balances  aggregating  $1,250.62 
are  considered  to  be  worth  60%  of  their  face  value.  Patterns, 
Tools  and  Dies  are  worth  $10,000.00  as  a  going  concern,  and 
$1,000.00  on  liquidation.  Doubtful  notes  and  accounts  are  con- 
sidered worth  50%.  Net  advances  to  branches  involve  the  con- 
sideration of  sale  of  finished  product,  collection  of  local  ac- 
counts, payment  of  accrued  salaries,  rent,  etc.,  to  net  $150,000.00 
as  a  going  concern,  and  $100,000.00  on  liquidation.  Deferred 
Charges  may  be  considered  worth  $1,000.00  on  liquidation. 
Land  Contract  represents  a  balance  due  on  principal  of  $3,000.- 
oo.  It  is  estimated  that  the  receivership  fees,  including  special 
allowance,  will  amount  to  3%  of  the  unpledged  assets  if  sold  in 
their  present  condition,  or  5%  if  the  plant  is  operated  by  the 
receiver. 

Prepare  a  Statement  of  Affairs  to  submit  to  the  creditors  as  a 
result  of  a  complete  audit,  showing  the  position  and  relation 
of  the  secured  and  unsecured  creditors  and  stockholders,  the 
book,  going  and  liquidating  values  in  comparison,  together  with 
a  Deficiency  Account.  Due  regard  must  be  shown  for  compre- 
hensive but  brief  exposition,  proper  certification  and  formal 
subscription  as  C.  P.  A.  in  Michigan. 
(20  Credits) 

The  Standard  Overall  Company  employing  piece-work  oper- 
ators and  estimating  material  consumpeion  on  the  basis  of  spe- 
cifications, has  allowed  its  cost  system  to  fall  behind  and  em- 
ploys you  to  pull  the  work  together.  You  find  that  starting  the 
year  opening  entries  appears  on  your  Ledger  as  follows : 

Finished   Garments    $     110,000.00 

Work  in   Process 5,000.00 

Raw  Material    20,000.00 

Undistributed  Departmental  Burden   2,500.00 

Undistributed  General  Factory  Burden   1,000.00 

Subsequent  Transactions  per  Books : 

Material  Purchased  500,000.00 

Material  Delivered  to  Cutting  Room 475,000.00 

Productive  Labor,  (Accrued),  comprising 

850,000  productive  hours  250,000.00 


162  MICHIGAN  C.  P.  A.  MANUAL 

Departmental  Burden  (Accrued)    100,000.00 

General  Factory  Burden  (Accrued),  including 

25,000  hours  non-productive  time  25,000.00 

Selling  Expenses    150,000.00 

Administrative  Expenses  80,000.00 

Garments  completed,  delivered  to  finished  stock  840,000.00 

Garments  sold  valued  at  manufacturing  cost. . . .  900,000.00 

vSales  (Net)   1,200,000.00 

Taking  of  Inventory  necessitated  the  following  adjustments: 

Raw  Material  ( Short)    3,000.00 

Work  in  Process   (Over)    500.00 

Finished  Garments   (Short)    1,500.00 

Departmental  Burden  Rate  (Flat) 12  cents  per  hour 

General  Factory  Burden  Rate  (Flat) 3  cents  per  hour 

Raise  the  necessary  ledger  accounts  and  show  Manufacturing, 
Trading,  and  Profit  and  Loss  Statements  together  with  Trial 
Balance  at  close. 

4.  (15  Credits) 

X,  Y,  and  Z  enter  into  the  real  estate  business  equal  partners. 
X  and  Y,  being  experienced  but  without  money  or  property  to 
invest,  arrange  with  Z  to  loan  the  firm  $27,000.00  at  6%  which 
is  invested  in  acreage.  It  is  agreed  that  the  loan  is  to  be  repaid 
out  of  the  profits  of  the  business  on  condition  that  two-thirds  of 
the  annual  profits  are  to  be  set  aside  in  cash  for  that  purpose 
and  no  profits  are  to  be  withdrawn  until  the  note  with  interest 
is  fully  paid.  Assuming  that  the  profits  during  the  first  year 
were  just  sufficient  to  warrant  a  distribution  of  profits  leaving 
the  investment  undisturbed,  and  that  there  were  no  partial  pay- 
ments— 

Prepare  journal  entries  giving  effect  to  the  above  considera- 
tions, and  trial  balances  showing  the  condition  of  the  books  at 
close  as  relating  to  the  affected  accounts : 

(a)  Before  payment  of  the  note  and  interest 

(b)  After  payment  of  note,  interest  and  dividends. 

5.  (15  Credits) 

Chart  an  organization  and  draft  the  following  skeleton  forms 
for  an  automobile  manufacturing  company. 

(1)  Purchase  Order  Blank.  (5)  Production  Order. 

(2)  Requisition  on  Storeroom.  (6)  Betterment  Order. 

(3)  Inventory  Tag.  (7)  Check  Register. 

(4)  Stores-Record  Card  (8)  Journal  Voucher 


THEORY  OF  ACCOUNTS 


MICHIGAN  C.  P.  A.  MANUAL  165 

THEORY  OF  ACCOUNTS 


Friday,  December  17,  1915,  from  8:00  A.  M.  to  12:00  M. 


1.  (a).  Does  double  entry  bookkeeping  require  twice  the  work  of 

single  entry?     If  so,  explain  how.     If  not,  explain  why  it 
is  so  called,  and  show  why  it  does  not. 

(b)  Prepare  a  statement  that  could  be  secured  from  a  set  of 
books  kept  by  single  entry  for  an  ordinary  retail  hardware 
store,  tell  where  each  item  would  be  obtained,  and  make 
such  entries  as  would  be  needed  to  change  the  books  to 
double  entry. 

2.  Indicate  the  difference  in  closing  books  kept  for  a  business  con- 
ducted by  an  individual,  by  a  firm,  or  by  a  corporation. 

3.  Formulate  a  special-column  cash  book  for  some  line  of  busi- 
ness, naming  the  kind.    Make  sufficient  entries  to  illustrate  ev- 
ery possible  use  of  the  columns.    Close  the  same,  marking  all  red 
ink  work  with  (R). 

4.  Make  entries  in  journal  form  for  each  of  the  following  trans- 
actions : 

(a)  You  buy  a  bill  of  goods,  list  price  $100.00,  with  trade  dis- 
count of  20-10-5 ; 

(b)  You  buy  a  bill  of  goods,  list  price  $100.00,  subject  to  2% 
discount  if  paid  in  10  days,  which  you  do; 

(c)  February   14,  you  buy  a  note,  face  value  $ioo.oc,  given 
January  14  for  3  months,  discounted  at  6%  ; 

(d)  You  buy  goods  from  a  concern  under  an  agreement  that 
if  you  purchase  $12,000.00  worth  during  the  year  you  will 
be  allowed  an  additional  discount  of  i%  on  all  purchases 
for  the  year.    Your  purchases  total  $15,000.00  for  the  year 
and  you  deduct  your  i%  for  the  year  from  the  last  bill 
when  you  pay  it ; 

(e)  You   need   money   and   you   have  your   go-day   note    for 
$500.00  discounted  at  the  bank  at  6%  ; 


166  MICHIGAN  C.  P.  A.  MANUAL 

(f)  You  are  making  your  annual  statement  and  in  arriving  at 
your  inventory  value  you  discount  the  merchandise  on  hand 
5%  to  cover  shelf  wear  and  tear; 

(g)  You  own  a  note  given  you  by  a  customer,  face  value  $i,- 
ooo.oo,   drawing   5%    interest,   given   December    i    for  4 
months.    You  discount  it  at  the  bank  today  at  6%. 

5.  A  man  has  saved  $10,000.00  which  is  invested  at  6%.     He  is 
working  for  a  concern  at  a  salary  of  $100.00  a  month.  He  de- 
cides to  go  into  business  for  himself.     He  invests  his  capital, 
forfeiting  his  interest.  He  devotes  his  time  to  the  business,  for- 
feiting his  salary.    At  the  end  of  the  year  his  statement  shows  a 
profit  of  $2,000.00.     Can  the  business  be  said  to  have  made 
$2,000.00  or  did  it  in  reality  only  make  $200.00  ?    Discuss  fully 
the  accounting  and  economic  principles  involved.  Suppose  that 
instead  of  money  loaned  his  capital  had  been  in  the  form  of  a 
store  rented  for  $100.00  a  month  and  he  cancelled  the  lease  and 
used  it  himself,  borrowing  what  money  was  needed  for  working 
capital  from  the  bank  and  paying  interest  for  same.    Would  that 
alter  the  question  of  profit  ? 

6.  What  is  a  controlling  account?     Name  those  more  commonly 
used.    Illustrate  and  explain  one  in  detail. 

7.  Give  purpose  of  the   following  accounts,   indicating   whether 
debit  or  credit  side  of  account  should  be  larger,  and  tell  how 
the  account  would  be  closed :  reserve  fund,  sinking  fund,  depre- 
ciation, doubtful  debts,  bond  redemption,  dividend,   royalties, 
organization  expense,  mortgage,  goods  in  process. 

S.  B  owes  you  $1,500.00  on  account,  $750.00  of  which  will  be  due 
in  30  days.  You  ask  permission  to  draw  on  him  at  30  days 
sight,  to  which  he  agrees.  You  do  so.  He  accepts  draft.  You 
discount  it  at  6%.  He  allows  draft  to  go  to  protest.  You  pay 
$1.25  fees.  Later  he  pays  you  in  full,  including  fees.  Make 
every  entry  involved  in  your  books,  including  proper  explana- 
tions. 

9.  Describe  the  use  of  all  books  where  records  are  kept  concerning 
"capital  stock." 

10.    Construct  a  balance  sheet  for  a  national  bank,  showing  every 
possible  item  which  should  appear  in  one. 


MICHIGAN  C.  P.  A.  MANUAL  167 

THEORY  OF  ACCOUNTS 


Saturday,  December  23,  1916,  from  8:00  A.  M.  to  12:00  M.* 


1.  (a)  What  are  the  advantages  of  numbering  accounts?     De- 

scribe methods  by  which  it  may  be  done. 

(b)  Explain    differences    between    trial    balance    and   balance 
sheet. 

2.  (a)   Explain  ways  in  which  depreciation  is  figured.    How  is  it 

treated  in  books? 

(b)  Explain  methods  of  treating  accruals,  indicating  advan- 
tages and  weaknesses  of  each? 

3.  (a)  What  are  nominal  accounts?    How  are  they  used?    How 

closed  ? 

(b)   Distinguish  between  capital  and  revenue  receipts  and  ex- 
penditures. 

4.  A  company  with  an  authorized  capital  of  $500,000.00,  $100.00 
par  value,  issues  4,000  shares  in  payment  of  various  properties. 
In  order  to  secure  working  capital,  the  share  holders  return  to 
the  company  three-eighths  of  their  holdings  to  be  sold  at  50 
and  on  the  same  day  500  shares  are  sold  and  paid  for.     How 
would  you  treat  the  matter?    Draft  entries  and  show  ledger  ac- 
counts and  balances  ? 

5.  A  corporation  sells  first  mortgage  bonds  at  a  premium  and  sec- 

ond mortgage  bonds  at  a  discount.  Make  a  statement  of  facts, 
indicating  amounts,  percents  and  time?  Make  proper  entries 
and  explain  the  various  methods  of  handling  premium  and  dis- 
count on  bonds. 

6.  (a)   Describe  in  detail  the  handling  of  Imprest  Cash. 

(b)   Explain   differences   between    funded   debts   and   floating 
debts. 

7.  (a)   Define  and  distinguish  between  a  statement  of  income  and 

expense  and  a  statement  of  receipts  and  disbursements. 

(b)   Explain  what  is  meant  by  Contingent  Liability  and  how  it 
is  handled  in  books. 


!68  MICHIGAN  C.  P.  A.  MANUAL 

8.  (a)  What  is  the  difference  between  reserve  funds  and  reserves? 

(b)  What  is  meant  by  deferred  charges? 

9.  Explain  the  purpose  of  a  clearing  house,  method  of  operation, 

and  accounting  procedure. 

10.    Prepare  pro  forma  balance  sheet  and  profit  and  loss  account  of 
some  line  or  business,  indicating  the  business  in  question. 


THEORY  OF  ACCOUNTS 


Friday,  November  16,  1917,  from  2:00  P.  M.  to  5  130  P.  M. 


Candidates  are  required  to  answer  six  out  of  the  following 
nine  questions. 


1.  You  are  called  upon  to  state  what  is  the  annual  sinking  fund 
necessary  to  redeem  a  principal  sum  of  $1,000,000  due  30  years 
hence — it  being  assumed  that  the  annual  sums  set  aside  are  in- 
vested at  compound  interest  at  5%.     State  what  computation 
you  would  make  to  arrive  at  the  result  desired.    You  need  not 
work  out  the  computation. 

2.  Discuss  the  relative  merits  of  bound  books  and  loose-leaf  or 
card  records  for  various  accounting  purposes. 

3.  Describe  the  form  in  which  it  is  customary  to  submit  accounts 
of  trustees  and  executors  to  a  probate  court  in  any  jurisdiction 
with  which  you  are  familiar.    Enumerate  the  various  schedules 
containing  the  details  of  such  accounts  and  describe  exactly 
what  information  each  affords. 

4.  What  are  specification  costs?     What  are  their  special  advan- 
tages and  disadvantages  ? 

5.  Outline  the  instructions  you  would  give  to  afford  the  head  of- 
fice of  a  company  adequate  control  over  expenditures  at  its 
various  plants  for  additions  and  replacement  repairs  and  to  en- 
sure uniform  and  correct  accounting  treatment  thereof. 

6.  State  the  general  principles  to  be  adopted  in  valuing  the  inven- 
tory of  a  concern  engaged  in  selling  various  articles,  some  of 
which  it  manufactures  and  others  of  which  it  buys  complete. 


MICHIGAN  C.  P.  A.  MANUAL  169 

7.  The  "X.  Y.  Z."  Corporation,  the  accounts  of  which  you  are  aud- 
iting, is  an  American  company,  and  has  as  its  principal  asset 
an  industrial  plant  purchased  many  years  ago  located  in  Mex- 
ico. It  also  has  capital  locked  up  in  current  inventories,  accounts 
receivable,  etc.,  incidental  to  the  operation  of  such  Mexican 
plant.    For  many  years  the  Mexican  accounts  were  reflected  on 
the  head-office  books  on  the  basis  of  $2  Mex.  to  $i  U.  S.  A. 
Do  you  consider  this  proper  at  a  time  when  Mexican  exchange 
stands  at,  say,  $i  Mex.. equal  to  i8c  U.  S.  A.?    Assuming  you 
feel  that  the  situation  requires  adjustment,  how  would  you  pro- 
ceed to  correct  the  American  balance  sheet? 

8.  Define — Deficiency  Account,  Amortization,   Consolidated   Bal- 
ance Sheet,  Depreciation,  Contingent  Liability  and  Controlling 
Account. 

9.  The  prospective  purchaser  of  a  business  employs  you  to  exam- 
ine the  accounts. 

What  important  facts  should  you  give  your  client  in  such  a 
case? 


'  THEORY  OF  ACCOUNTS 


Friday,  May  17,  1918,  from  2:00  P.  M.  to  6:00  P.  M. 


The  candidate  is  required  to  answer  questions  I  and  2 
and  four  other  questions. 


i.  Smith,  Hill  and  Davis  form  a  partnership  under  an  agreement 
that  Smith  is  to  have  a  salary  of  $200.00,  Hill  $150.00,  and 
Davis  $100.00  a  month  respectively.  The  profits  are  to  be  di- 
vided in  proportion  to  the  amount  of  business  secured  by  each 
partner.  The  partners  are  to  be  individually  responsible  for 
any  direct  losses  arising  from  their  own  business. 
They  are  in  business  nine  months,  at  the  end  of  which  time 
their  books  show  as  follows : 

Smith's  sales    $5,310.00 

Hill's  sales   3,100.00 

Davis'  sales    3,200.00 

Net  profits 2,468.50 


170  MICHIGAN  C.  P.  A.  MANUAL 

They  then  decide  to  rescind  the  salary  agreement,  treating  any 
salary  drawn  as  an  advance,  but  otherwise  to  divide  the  profits 
according  to  the  original  arrangement. 

You  find  errors  during  the  nine  months'  period,  namely : 

Office  furniture,  charged'  to  operation $65.00 

Funds  lent  by  Davis,  credited  to  his  salary 

account    400.00 

and  open  items  not  entered  on  the  books  as  follows : 

Smith's  salary  (ninth  month)    $  200.00 

Hill's  salary  (ninth  month) 150.00 

Advertising 27.50 

Clerk  hire 130.00 

Telephone • 6.00 

Rent 50.00 

Stationery    • 15.00 

Accounts  receivable,  Smith's  business,  uncol- 

lectable    210.00 

and  that  the  sales  represent  a  gross  profit  of  100%  over  cost 
of  merchandise. 

State  journal  entries  necessary  to  readjust  the  accounts;  and 
prepare  a  corrected  profit  and  loss  account  and  a  statement  of 
the  distribution  of  the  profits. 

2.    The  A  Company  buys  on  January  I,  95  per  cent  of  the  stock 
of  the  B  Company. 

The  balance  sheet  of  the  latter  company  on  that  date  is  as 
follows : 

ASSETS  LIABILITIES 

Property  account  $   500,000      Capital    $1,000.000 

Current  assets  850,000      Surplus 100,000 

Current  liabilities 250,000 


$1,350,000  $1,350,000 

The  A  Company  pays  par  for  90  per  cent  of  the  stock  and 

120  for  5  per  cent  of  it. 

During  the  next  six  months  a  doubtful  claim  of  the  B  Company, 

which  prior  to  January  I  had  been  written  off,  turns  out  to  be 

good  and  $5,000  cash  is  realized  on  it. 

At  the  end  of  the  first  six  months  B  Company  has  made  $100,- 

ooo  net  profit  from  operations,  and  a  dividend  of  $200,000  is 

paid. 


MICHIGAN  C.  P.  A.  MANUAL  171 

In  making  up  a  consolidated  balance  sheet  of  A  Company  and 
its  subsidiary  at  January  I  (date  of  purchase),  state,  giving 
briefly  your  reasons,  how  you  would  treat : 

(a)  A  Company's  interest  in  the  B  Company 
and  at  July  I 

(b)  The  doubtful  claim  recovered 

(c)  The  dividend  paid 

(d)  The  interest  of  outside  B  stockholders  in  B  Company. 

3.  In  auditing  the  books  of  a  corporation  you  find  that,  in  order 
to  provide  a  sum  to  redeem  a  mortgage  of  $100,000  falling  due 
at  the  end  of  10  years,  a  reserve  of  $8,000  per  annum  has  been 
set  aside  annually  for  three  years,  but  that,  contrary  to  inten- 
tion, the  company  has   failed  to  accumulate  interest  thereon. 
Assuming  interest  at  4  per  cent   (convertible  annually)   what 
should  have  been  the  total  accumulations  to  date,  and  what 
amount  should  now  be  set  aside  annually  for  the  next  seven 
years  in  order  to  complete  the  sinking  fund?  (i.O4)7=i.3i593. 

4.  Describe  the  following  and  state  some  of  the  respective  ad- 
vantages and  disadvantages  of  each : 

(a)  Voucher  system 

(b)  Loose-leaf  system 

(c)  Cash  journal. 

j.  Name  two  methods  of  distributing  the  overhead  or  indirect 
expense  of  a  factory  so  as  equitably  to  transfer  such  expense 
to  the  cost  of  the  different  articles  manufactured.  What  ad- 
vantage has  either  method  over  the  other? 

6.  Should  a  manufacturing  concern  invoice  its  goods  sent  to  a 
branch  house    (i)    at  selling  price,  or   (2)    at  the  prevailing 
wholesale  price  of  the  same  or  similar  goods  obtainable  in  open 
market,  or  (3)  at  cost?    State  the  reasons  fully. 

7,  (a)   What  books  of  record  are  necessary  in  addition  to  the 

books  of  account,  for  a  corporation  existing  under  the  laws 
of  your  state? 

(b)   Of  what  value  would  such  records  be  for  the  purposes 
of  an  audit? 

6.  What  general  principles  should  be  observed  in  differentiating 
between  capital  and  revenue  expenditures? 

9.  Give  illustrations  of  "diminishing'  or  'wasting"  assets.  How 
should  they  be  treated  ? 


172  MICHIGAN  C.  P.  A.  MANUAL 

THEORY  OF  ACCOUNTS 


Tuesday,  November  19,  1918,  from  2:00  P.  M.  to  6:00  P.  M, 


Answer  any  eight  of  questions  I  to  n  and  any  four  of 
questions  12  to  18  and  no  more. 


1.  Mention  and  explain  two  common  views  concerning  the  treat- 
ment of  donated  capital  stock. 

2.  What  is  the  status  of  a  company  in  the  hands  of  the  Alien 
Property  Custodian  with  regard  to  the  capital  stock  tax  as  re- 
quired by  the  revenue  act  of  September  8,  1916? 

3.  A  manufacturing  concern  having  several  branch  offices  for  the 
sale  of  its  product  is  in  the  habit  of  billing  the  branches  at  a 
wholesale  price  and  expects  each  branch  to  show  a  profit.     A 
balance  sheet  is  prepared  in  which  the  current  accounts  with  the 
branches   (after  closing  out  their  profits  and  losses  into  head 
office)  are  carried  as  accounts  receivable.    These  branches  carry 
a  considerable  stock  of  merchandise  and  have  their  own  ac- 
counts receivable  and  possibly  some  outstanding  accounts  pay- 
able.   How  would  the  above  balance  sheet  have  to  be  modified 
in  order  to  show  correctly  the  financial  condition  of  the  busi- 
ness? 

4.  (a)   What  items  do  you  consider  should  be  charged  or  credited 

direct  to  surplus? 

(b)  Would  you  regularly  make  small  adjustments  of   subse- 
quently discovered  errors  through  this  account? 

(c)  Is  the  balance  to  credit  of  surplus  ever  in  any  circumstan- 
ces a  liability,  and  if  so,  to  whom? 

5.  Give  some  idea  of  what  taxes  you  would  charge  against  income 
and  what  against  surplus.    Of  the  former,  which,  if  any,  would 
you  take  up  into  manufacturing  costs?    What  provision,  if  any, 
would  you  make  for  income  and  excess  profits  taxes  in  closing 
accounts   before  the  passing  of   a  pending  act   levying  these 
taxes,  either  in  general  circumstances  or  when  profits  are  partly 
divisible  under  some  special  contract  or  arrangement  ? 


MICHIGAN  C.  P.  A.  MANUAL  173 

6.  Give  some  principles  to  determine  a  proper  disposition  of  the 
cost  of  enlarging  a  plant,  including  a  partial  re-building  of  the 
old  portion. 

In  case  you  have  insufficient  data  to  enable  you  to  apply  these 
principles  satisfactorily,  offer  some  solution  of  the  difficulty. 

7.  What  are  the  distinguishing  characteristics  of  the  "corporation" 
as  compared  with  other  forms  of  business  organization?   What 
privileges  does  it  carry  and  what,  if  any,  are  its  disadvantages? 

8.  There  is  a  confusion  in  the  minds  of  many  people  between  state- 
ments of  "revenue  and  expense"  on  the  one  hand  and  of  "re- 
ceipts and  payments"  on  the  other  hand.    Discuss  the  distinctive 
features  of  such  statements  showing  wherein  they  differ. 

9.  Can  you  suggest  any  circumstances  in  which  good-will  would 
appear  in  the  books  of  a  partnership? 

10.  A  company  makes  machines  of  a  highly  technical  nature  which 
it  rents  out,  but  refuses  to  sell,  to  its  customers.     These  ma- 
chines, if  kept  in  good  order,  are  calculated  to  last  almost  in- 
definitely, but  say  for  at  least  20  years.    They  are,  on  the  other 
hand,  liable  to  be  superseded  at  any  time  by  new  devices  or 
methods.    How  would  you  treat  the  original  capital  value  on  the 
books  of  the  company?     (Assume  that  two  years'  rental  would, 
in  each  case,  liquidate  the  first  cost.) 

11.  What  are  the  present  requirements  of  the  federal  reserve  banks 
in  regard  to  the  verification  of  the  accounts  of  companies  whose 
paper  is  submitted  by  member  banks  for  rediscount? 

12.  Enumerate  the  essential  heads  of  information  which  ought  to 
be  brought  out  in  statements  prepared  for  the  information  of 
bankers  for  credit  purposes.    W7ould  you  or  would  you  not  am- 
plify such  information  in  a  statement  prepared  for  the  infor- 
mation of 

(a)  Officers  and  directors; 

(b)  Shareholders  of  a  company? 

13.  On  December  31  the  office  of  a  company  with  which  you  have 
previously  been  connected  as  auditor  is  burned  and  all  its  rec- 
ords completely  destroyed.    Its  plant  is,  however,  saved,  and  its 


I74  MICHIGAN  C.  P.  A.  MANUAL 

business  can  be  continued  without  any  break.  You  are  called 
upon  to  assist  in  the  preparation  of  a  balance  sheet  and  open 
up  new  books  without  delay.  How  would  you  proceed?  You 
have  in  your  possession  a  balance  sheet  prepared  by  yourself 
at  the  close  of  the  preceding  year.  You  will  incidentally  also 
be  required  to  prepare  the  company's  returns  for  income  tax 
purposes. 

14.  Define  corpus  and  income  and  state  clearly  what  they  mean  in 
dealing  with  the  accounts  of  a  decedent's  estate.     Outline  the 
books  you  would  keep  in  order  properly  to  record  transactions 
affecting  such  an  estate,  it  being  assumed  that  the  will  calls  for 
the  division  of  the  estate  into  a  number  of  trusts,  some  of  which 
carry  life  rents  to  certain  beneficiaries  with  a  different  applica- 
tion ultimately  of  the  principal. 

15.  State  the  rules  which  govern  the  Treasury  Department  either 
under  law  or  under  its  official  rulings  with  relation  to  the  de- 
duction of  any  four  out  of  the  following  seven  classes  of  de- 
ductions from  gross  income  in  preparation  of  returns  of  net 
revenue : 

(1)  Bad  debts  and  reserves  for  them; 

(2)  Depreciation  of  horses; 

(3)  Depletion  of  coal  in  a  coal  mining  company; 

(4)  Depletion  of  oil  in  an  oil  producing  company; 

(5)  Donations  and  charity; 

(6)  Salaries  of  officers  of  a  corporation ; 

(7)  Excess  profits  tax  in  its  relation  to  income  tax  and  vice 

versa. 

1 6.  Give  a  pro  forma  monthly  operating  and  profit  and  loss  state- 
ment for  any  one  of  the  following  industries,  introducing  a 
statistical  statement  showing  unit  costs  or  any  other  useful  cost 
data  which  may  be  practical : 

(a)  A  brewery; 

(b)  A  flour  mill ; 

(c)  A  coal  mine; 

(d)  An  oil  development  company  with  producing  wells; 

(e)  A  foundry; 

(f)  A  rolling  mill  producing  steel  rails. 


MICHIGAN  C.  P.  A.  MANUAL  175 

ACTUARIAL  QUESTIONS  ( OPTION AI,) 

17.  A  corporation  wants  to  retire  a  debt  of  $105,000  bearing  5% 
interest  payable  monthly.    The  tenth  payment,  including  inter- 
est, is  to  be  $15,000.     The  other  nine  periodical  payments  are 
all  to  include  interest  and  to  be  of  the  same  amount.    Required 
the  amount  of  each  of  such  nine  payments  (1.05°=  1.551328). 

18.  A  $10,000  five  per  cent  semi-annual  coupon  bond  is  bought  on 
a  4  per  cent  basis  due  i]/2  years  hence.    What  did  it  cost? 


THEORY  OF  ACCOUNTS 


Tuesday,  June  10,  1919,  from  i  :oo  P.  M.  to  4  :oo  P.  M. 


1.  (a)   Name  and  explain  several  deferred  charges  to  expense. 

(b)  Name  several  accrued  liabilities. 

(c)  Present  a  National  Bank  Statement  in  proper  form  in- 
tened  to  indicate  a  stock  value  of  160. 

2.  (a)   Explain  how  overhead  cost  is  apportioned. 

(b)   What  do  you  mean  by  accrued  manufacturing  expense? 

3.  Prepare  a  graphic  chart  showing  three  business   facts  which 
you  wish  to  present  to  the  manager  of  the  business. 

4.  Outline  in  order  the  various  steps  you  would  take  in  handling 
labor  tickets. 

5.  (a)   Illustrate  accounts  that  are  considered  as  deductions  from 

income. 

(b)  Illustrate  mixed  accounts. 

(c)  Illustrate  how  to  handle  goods  sent  out  for  sale  or  return. 

6.  (a)   Name  and  explain  the  various  methods  by  which  cost  ac- 

counts may  be  handled  bringing  out  clearly  among  other 
items  the  difference  between  the  specific  order  plan  and 
the  process  plan. 

(b)   Name  the  ways  in  which  depreciation  is  figured  and  ex- 
plain the  advantages  of  each. 


1 76  MICHIGAN  C.  P.  A.  MANUAL 

7.  Explain  the  accounting  required  by  an  administrator  or  an  ex- 
ecutor. 

8.  How  should  the  books  of  branch  houses  be  kept  in  order  that 
although   entirely   independent   they   may   be   included   in   the 
books  of  the  main  concern? 

9.  Name  and  explain  the  main  features  of  the  voucher  system. 
10.    Prepare  an  organiaztion  chart  for  some  particular  business.    ' 


AUDITING 


MICHIGAN  C.  P.  A.  MANUAL  179 

AUDITING 


Saturday,  December  18,  1915,  from  i  :oo  P.  M.  to  5  :oo  P.  M. 


1.  The  machinery  used  by  a  concern  was  purchased  on  the  install- 
ment plan,  monthly  payments,  title  to  pass  on  last  payment.    At 
close  of  year  several  payments  are  not  due  and  therefore  un- 
paid.    The  concern  also  pays  a  royalty  on  the  output  of  the 
machines  bought  in  this  way.     How  would  you  deal  in  your 
audit  with  machinery,  installments  paid,  and  royalty? 

2.  A  corporation  has  sufficient  cash  on  hand  to  pay  a  6%  dividend. 
Before  doing  so  the  directors  ask  you  to  look  over  their  records 
and  advise  them.    It  is  not  to  be  a  detailed  audit.    What  points 
would  you  be  careful  to  examine  before  reporting?    Name  con- 
ditions under  which  a  dividend  would  not  be  advisable. 

3.  A  concern  needed  an  addition  to  its  plant.     Not  having  enough 
ready  capital,  they  borrowed  money  and  when  the  interest  was 
paid  it  was  charged  to  the  "plant''  account  on  the  theory  that  it 
was  not  an  expense  in  the  ordinary  conduct  of  the  business  and 
therefore  not  be  charged  to  the  regular  interest  and  discount 
account  but  might  with  propriety  be  charged  as  a  part  of  the 
addition.    Is  the  theory  sound  ? 

4.  Outline  an  audit  made  by  you  this  year,  indicating  character  of 
business,  books  used,  and  order  of  procedure. 

5.  A  manufacturing  concern  during  a  slack  period  used  its  own 
labor  and  material  for  the  purpose  of  construction  and  charged 
the  "plant"  account  with  the  value  of  the  work  done  at  the  price 
it  would  have  cost  if  outsiders  had  been  employed.    What  would 
you  say  about  it  in  your  report  ? 

6.  (a)   How  would  you  treat  money  received  on  stock  subscrip- 

tions from  persons  who  afterward  forfeited  their  stock  by 
non-payment  of  other  installments? 


i8o  MICHIGAN  C.  P.  A.  MANUAL 

(b)  A  company  buys  $5,000.00  of  its  own  stock  for  $4,000.00. 
The  entry  that  is  made  debits  Treasury  Stock  $5,000.00, 
credits  cash  $4,000.00,  and  credits  Loss  and  Gain  $1,000.00. 
State  why  you  approve  or  disagree. 

7-  Write  a  two-hundred-word  paper  explaining  whether  "Capital 
Stock"  account  should  be  credited  for  the  authorized  amount, 
the  subscribed  amount,  or  the  paid-in  amount,  giving  illustra- 
tions of  all  possible  entries. 

8.  In  a  business  consisting  of  five  separate  departments  there  is 
kept  a  general  ledger  containing  capital  account,  the  speculative 
accounts  such  as  merchandise,  expenses,  etc.,  and  accounts  with 
each  separate  department,  sales  ledgers  containing  the  accounts 
of  customers,  and  a  purchase  ledger  containing  the  accounts  of 
foreign  and  domestic  creditors. 

In  the  general  ledger  each  department  account  is  charged  with 
all  purchases  made  for  the  department  and  credited  with  cash 
received  and  allowances  on  account  of  sales  of  said  department. 
The  sales  ledgers  contain  the  different  customers'  accounts, 
showing  charges  for  sales  and  credits  for  cash,  allowances,  etc., 
on  account  of  sales.  The  purchase  ledger  contains  the  accounts 
of  the  different  creditors  showing  credits  for  merchandise  and 
charges  for  cash. 

In  making  an  audit  of  the  books,  how  would  you  determine  that 
the  profit  or  loss  for  each  department  had  been  properly  stated 
for  a  given  period? 

9.  A  and  B  formed  a  partnership  in  a  manufacturing  business, 
each  contributing  $25,000.     The  business  was  conducted  in  a 
building  owned  by  B,  for  which  B  was  to  be  paid  $10,000  rent 
per  year.     During  three  given  years  the  profits  averaged  $10,- 
ooo,  and  A  drew  out  $1,000,  $5,000  and  $10,000  in  the  respective 
years,  and  B  drew  out  $3,000,  $4,000  and  $5,000.     The  rent 
account  was  adjusted  in  the  books  by  crediting  B  in  each  year 
with  $5,000,  and  charging  this  amount  in  the  first  year  to  A, 
the  second  year  to  expense,  and  the  third  year  to  B. 

In  an  audit  of  the  books  how  would  you  state  the  accounts  at 
the  close? 

TO.    Outline  a  method  of  determining  the  efficiency  of  labor  in  a 
factory. 


MICHIGAN  C.  P.  A.  MANUAL  181 

AUDITING 


Saturday,  December  23,  1916,  from  I  :oo  P.  M.  to  5  :oo  P. 


M. 


1.  Explain  in  detail  the  methods  of  auditing  a  pay  roll,  indicating 
the  special  points  which  you  would  investigate  for  the  purpose 
of  determining  whether  fraud  had  been  practiced? 

2.  In  making  an  audit  of  a  corporation,  you  find  an  account  on 
the   ledger   with    Podunk    Railroad    Bonds.      This   account   is 
charged  under  date  of  March  I,  1913,  with  $105,000.00,  same 
being  the  cost  of  $100,000.00  first  *  mortagage  bonds   bearing 
interest  at  5%  payable  January  I  and  July  I  of  each  year.    No 
part  of  the  premium  has  been  charged  off  but  Interest  account 
has  been  credited   for  the  semi-annual  payments  of   interest. 
Those  bonds  were  purchased  on  a  4%  semi-annual  basis.    You 
are  making  the  audit  as  of  December  31,  1916.     With  this  in- 
formation in  hand,  you  are  to  prepare  a  schedule  showing  the 
book  value  of  the  bonds  at  each  interest  payment  period,  the 
interest  received,  the  income  and  amortization  for  each  period 
on  the  basis  on  which  the  bonds  were  bought,  also  the  necessary 
journal  entries  to  adjust  the  accounts  on  December  31,  1916. 

3.  Explain  in  detail  an  audit  which  you  have  made  this  past  year? 

4.  Write  a  one-thousand-word  statement  containing  instructions 
which  you  would  give  to  a  young  fellow  just  entering  your  ac- 
counting office  on  the  subject  of  working  papers. 

5.  You  are  asked  to  certify  to  the  balance  sheet  of  a  company,  a 
copy  of  which  has  already  been  issued  to  the  companies'  bank- 
ers and  note  brokers  and  it  is  desired  that  you  accept  the  classi- 
fication of  assets  and  liabilities  which  has  been  made.   The  fol- 
lowing points  are  noticed  by  you  in  examination  of  the  same : 

( i )  Under  the  general  title  "real  estate,  plant  and  equipment" 
there  is  an  item  of  $15,000.00  for  land  purchased  five  years 
ago  upon  which  it  was  intended  to  erect  a  branch  factory. 


1 82  MICHIGAN  C.  P.  A.  MANUAL 

(2)  The  Accounts  Receivable  are  stated  at  a  lump  sum  and  an 
analysis   shows   that  amount   to    include    customer's    ac- 
counts, amounts  due  by  officers  and  employees,  unpaid  cap- 
ital stock,  subscriptions,  advanced  payments  on  merchan- 
dise purchased  and  unpaid  bonds  owned  by  the  company 
but  two  months  overdue. 

(3)  The  reserve  for  loss  on  customer's  accounts  is  shown  as  a 
separate  item  on  the  liability  side  of  the  balance  sheet. 

(4)  The  Accounts  Payable  account  includes  a  balance  due  to 
a  subsidiary  company. 

Would  you  accept  the  client's  classification  at  all  points?  If 
not,  what  changes  would  you  make? 

6.  (a)   How  is  it  possible  in  the  ordinary  audit  to  determine  that 

all  liabilities  are  .properly  entered  in  the  balance  sheet  ? 

(b)  How  is  it  possible  in  case  of  a  fire  where  a  perpetual  in- 
ventory is  not  kept  for  the  auditor  to  prepare  a  claim  for 
insurance  ? 

7.  Explain  the  methods  you  would  use  to  prove  the  correctness 
of  the  items  in  a  balance  sheet  relating  to  cash,  bills  receivable, 
accounts  receivable  and  reserve  for  bad  debts. 

8.  You  are  asked  to  prepare  a  report  upon  a  manufacturing  con- 
cern for  a  prospective  customer.   Name  the  points  which  you 
would  desire  to  investigate  and  the  tests  which  you  would 
place  upon  the  business  in  such  a  report. 

9.  In  auditing  the  accounts  of  a  corporation,  you  find  the  follow- 
ing entries  in  one  month  without  explanation : 

Profit  and  Loss  to  Accrued  Sinking  Fund $    8,333.33 

Accrued  Sinking  Fund  to  Reserve  for  Sinking 

Fund 100,000.00 

Union  Trust  Co.,  Trustee,  to  Accounts  Payable...  ioo,ooo.co 

Accounts  Payable  to  Cash 100,000.00 

Sinking  Fund,  No.  I,  to  Union  Trust  Co.,  Trustee.  100,000.00 

Reserve  for  Sinking  Fund  to  Profit  and  Loss 100,000.00 

Prepare  a  statement  showing  what  you  consider  the  situation 
was  which  brought  about  such  entries  and  what  recommenda- 
tions you  would  make  ? 


MICHIGAN  C.  P.  A.  MANUAL  183 

10.  (a)  How  would  you  disclose  on  a  balance  sheet  of  a  contractor 
a  building  which  was  60%  complete  but  no  part  of  which 
had  been  accepted? 

(b)  With  the  present  trend  toward  prohibition,  what  accounting 
proposition  would  you  make  in  the  books  of  a  corporation 
owning  a  brewery  in  order  to  maintain  its  financial  integ- 
rity before  authorizing  the  declaration  of  a  dividend? 

(c)  What  contingent  liabilities  would  you  look  for  in  the  books 
of  a  public  utility? 

(d)  How  would  you  verify  treasury  stock? 

(e)  How  would  you  treat  the  various  accounts  in  a  consolidat- 
ed balance  sheet  if  the  capital  stock  of  the  subsidiary  com- 
panies was  less  than  that  of  the  holding  company? 


AUDITING 


Thursday,  November  15,  1917,  from  9:00  A.  M.  to  12:30  P.  M. 


1.  You  are  required  to  make  a  detailed  cash  audit  for  three  years 
ending  October  31,  1917.    You  find  a  disbursement  for  "Rent 
October  1914,  $1,000.00"  on  November  6,  1914.    You  are  told 
the    receipt  is  missing    and  a  duplicate,  cannot  be    obtained. 
You  are  shown  as  a  voucher  a  check  dated  November  6,  1914, 
payable  to  the  landlord  or  order  for  $1,000.00,  endorsed  with 
a  rubber  stamp  and  marked  by  the  clients'  bankers  "paid." 
State  with  your  reasons  whether  you  would  accept  this  as  suffi- 
cient evidence  that  the  payment  was  made  as  recorded  and,  if 
not,  what  course  you  would  adopt. 

2.  How  would  you  proceed  in  a  cash  audit  of  a  club  or  fraternal 
order  to  ascertain  whether  the  treasurer  had  charged  himself 
with  all  dues  paid  by  members  to  him? 


184  MICHIGAN  C.  P.  A.  MANUAL 

3.  You  receive  the  following  letter : 

We  have  never  had  our  books  audited  but  are  contemplating  an  audit 
now.  Two  of  our  friends  have  recommended  you  to  us.  Both 
have  businesses  similar  to  ours  but  their  advices  as  to  the  time 
required  are  very  different.  Do  you  carry  out  different  kinds  of 
audits?  If  so,  what  are  the  different  kinds  and  under  what  cir- 
cumstances do  you  recommend  one  kind  and  when  another? 

Write  a  reply. 

4.  What  different  classes  of  obligations  and  liabilities  should  be 
disclosed  in  an  audit  for  credit  purposes  ?    How  would  you  ver- 
ify those  recorded  on  the  books  and  how  would  you  try  to  dis- 
cover any  not  so  recorded? 

5.  You  are  employed  to  instal  a  system  for  a  large  business  which 
your  clients  have  acquired.    Your  recommendations  are  adopt- 
ed at  the  beginning  of  a  fiscal  year.     At  the  close  of  the  year 
you  are  elected  by  the  stockholders  to  audit  the  accounts  for  the 
year. 

State  what  procedure  you  would  follow  in  examining  the 
charges  to  property  accounts,  and  the  objects  of  the  various 
steps  in  that  procedure. 

6.  What  are  the  essentials  of  an  audit  certificate  in  an  audit  for 
credit  puropses? 

7.  How  far  are  the  duties  of  an  accountant  auditing  the  books  of 
a  company  affected  by  the  character  and  extent  of  the  company's 
system  of  internal  check? 

8.  In  auditing  the  accounts  of  a  trustee  under  a  will,  what  special 
matters  require  to  be  dealt  with  which  do  not  arise  in  the  audit 
of  a  business  concern? 

9.  Prepare  a  bank  reconciliation  showing  at  least  three  different 
classes  of  items  constituting  the  difference  between  the  figures 
being  reconciled  and  state  how  far  you  would  investigate  such 
items  in  a  cash  audit. 

TO.  A  company  has  insured  the  life  of  its  president  for  its  own 
benefit,  and  is  carrying  the  amount  of  premiums  paid  in  its  bal- 
ance sheet?  What  position  would  you  as  an  auditor  take  in 
regard  to  these  premiums? 


MICHIGAN  C.  P.  A.  MANUAL 


185 


AUDITING 


Thursday,  May  16,  1918,  from  9:00  A.  M.  to  i  :oo  P.  M. 


1.  What  would  you  consider  satisfactory  evidence  of  the  correct- 
ness and  propriety  of  expenditures,  of  the  following  classes : 

Wages  paid  Expenses  of  president 

Land  purchased  Pensions  paid  to  ex-employes 

Salary  of  president  Directors'  remuneration? 

Commission  paid  to  bankers  for  sale  of  bonds 

2.  Give  either  the  classification  of  notes  and  accounts  receivable 
suggested  in  the  Federal  Reserve  Bulletin  for  April,  1917,  for 
use  in  audited  statements  for  credit  purposes,  or  an  alternative 
classification. 

3.  How  is  the  position  of  an  auditor  affected  if  the  system  of  the 
concern  under  audit  is  defective : 

(a)  As  to  internal  check 

(b)  As  to  cost  methods? 

4.  In  the  machinery  account  of  a  company  under  audit,  you  find 
the  following  among  other  items : 


Dr. 

Purchase  of  two  machines, 
Type  A,  including  freight. .  $8,000 

Gost  of  removing  a  disused 
machine,  Type  B,  to  make 
room  for  new  machine 160 

Cost  of  installation  of  two 
new  machines  280 

Alterations  to  four  Type  C 
machines,  necessitated  by 
change  in  product 640 

Cost  of  moving  two  machines 
from  Building  A  to  Build- 
ing B  to  permit  of  more 
economical  operation,  in- 
cluding reinstallation 270 


Cr. 

Sale  of  old  machine,  Type  A 
(less  cost  of  removal  and 
freight)  • $1,264 

Sale  of  old  machine,  Type  B . .    1,470 


186  MICHIGAN  C.  P.  A.  MANUAL 

The  balance  on  machinery  depreciation  account  shows  an  in- 
crease for  the  year  of  the  amount  provided  out  of  income 
which  is  computed  at  the  rate  of  4%  on  the  balance  of  machin- 
ery account  at  the  commencement  of  the  year.  The  method  of 
keeping  the  machinery  and  machinery  depreciation  accounts  has 
b.een  in  force  from  the  commencement  of  operations.  Draft 
your  comments  as  auditor  of  these  accounts,  assuming  that  no 
items  other  than  those  above  mentioned  call  for  any  comments. 

5.  Prepare  a  program  for  an  annual  audit  of  the  accounts  of  a 
trust  estate.     (It  is  not  necessary  to  deal  with  special  transac- 
tions, such  as  occur  in  connection  with  the  original  creation  of 
a  trust.) 

6.  Draft  a  form  of  audit  certificate  to  accompany  a  balance  sheet 
which  is  to  be  published  in  the  annual  report  of  a  corporation. 

7.  State  two  methods  which  have  been  used  to  conceal  thefts  of 
cash  and  also  procedure  in  an  audit  which  would  disclose  such 
irregularities  if  they  should  exist. 

8.  What  is  the  extent  of  an  auditor's  responsibility  in  respect  to 
the  classification  of  assets  and  liabilities  in  a  balance  sheet  which 
he  certifies? 

9.  Outline  the  work  which  should  be  done  in  connection  with  notes 
and  bills  payable  in  an  audit  for  credit  purposes  of  a  merchan- 
dising company. 

10.  How  would  you  proceed  if  the  accounts  of  a  corporation  which 
you  were  auditing  were  in  your  judgment  incorrect  and  you 
were  unable  to  induce  the  officers  to  make  the  changes  you 
deemed  imperatively  called  for : 

(a)  If  you  had  been  elected  as  auditor  by  stockholders 

(b)  If  you  had  been  appointed  by  the  directors 

(c)  If  you  had  been  instructed  by  the  president  on  the  request  of 

the  company's  bankers  or  note-brokers? 


MICHIGAN  C.  P.  A.  MANUAL  187 

AUDITING 


Monday,  November  18,  1918,  from  9:00  A.  M.  to  i  :oo  P.  M. 


Answer  ten  of  the  following  twelve  questions  and  no  more. 


1.  How  would  you  proceed  to  audit  the  books  and  accounts  of 
the  treasurer  of  a  local  Red  Cross  chapter?     What  evidence 
would  you  require  as  to  the  propriety  of  disbursements,  and 
how  would  you  ascertain  that  all  receipts  were  duly  recorded? 

2.  Draw  up  an  outline  of  a  report  on  your  audit  of  the  accounts 
of  a  corporation  that  has  recently  erected  a  large  apartment 
house.     Assume  your  instructions  covered  the  period  of  erec- 
tion and  at  least  one  year  of  operation. 

3.  A  corporation  has  issued  $1,000,000  of  6  per  cent  2O-year  bonds 
at  90  and  for  8  years  has  written  off  5  per  cent  of  the  discount 
each  year.     Last  year  an  opportunity  occurred  to  buy  in  $200,- 
ooo  at  85,  which  was  done  and  the  bonds  cancelled.    The  direc- 
tors propose  to  take  up  into  their  year's  revenue  $30,000,  the 
discount  saved  upon  extinction  of  this  liability.     Do  you  ap- 
prove?    If  not,  what  course  would  you  advise,  or,  if  they  in- 
sist, how  would  you  act? 

4.  "Inventory  of  merchandise  should  be  carried  at  cost  or  market, 
whichever  is  lower."    Do  you  assent  to  this  proposition?    Can 
you  suggest  circumstances  in  which  you  would  approve  a  de- 
parture therefrom?    Would  you  be  influenced  by  events  cr  con- 
ditions subsequent  to  the  date  of  closing  the  accounts?     Give 
reasons. 

5.  Assume  you  are  to  audit  periodically  the  accounts  of  the  trus- 
tees of  a  decedent's  estate,  holding  a  large  number  of  invest- 
ments, and  frequently  adding  thereto.    Outline  a  plan  for  your 
own  guidance  to  detect  the  failure  to  collect  or  record  the  in- 
come from  such  investments.     What  would  be  your  attitude 
regarding  accrued  interest  or  dividends  in  closing  the  accounts 
periodicaly  ? 


1 88  MICHIGAN  C.  P.  A.  MANUAL 

6.  Give  some  general  principles  which  will  guide  you  in  determin- 
ing whether  too  much  or  too  little  provision  has  been  made  for 
depreciation  of  buildings,  machinery,  tools,  good-will,  patents, 
franchises.     Would  a  flat  rate  cover  all  these  assets  satisfac- 
torily ? 

7.  On  pointing  out  the  insufficiency  of  the  provision  for  deprecia- 
tion on  machinery,  which  the  directors  admit,  you  are  met  with 
the  argument,  supported  by  evidence,  that  the  real  estate  values 
have  appreciated  to  an  even  greater  extent  than  the  entire  depre- 
ciation of  other  assets.     As  this  latter  is  not  taken  up  on  the 
books  you  are  asked  to  allow  the  one  to  offset  the  other.    Give 
reasons  for  your  agreement  or  disagreement. 

8.  A  financial  institution  has  a  large  amount  of  capital  invested  in 
mortgages  which  are  constantly  changing.     Suggest  a  plan  for 
confirming  by  averages  and  without  a  complete  detailed  examin- 
ation of  every  account,  the  amount  of  income  on  this  investment 
taken  into  profit  and  loss  account  for  a  year  under  examination. 

9.  State  how  you  would  satisfy  yourself  that  all  outstanding  lia- 
bilities of  a  business  are  properly  taken  up  in  the  balance  sheet. 
Point  out  what  you  would  like  to  find  by  way  of  system  that 
would  .simplify  this  task.     How  would  you  indicate  on  the  bal- 
ance sheet  as  of  December  31 : 

(a)  Preferred  dividend  (cumulative)  due  the  previous  No- 

vember i  not  declared 

(b)  Ordinary  dividend  for  the  year,  declared  the  following 

January  22 

(c)  Ordinary  dividend  declared  December  30,  payable  Feb- 

ruary i  ? 

10.  Your  verification  of  the  securities  of  a  corporation  has  to  be 
made  at  a  date  about  two  months  subsequent  to  the  date  of  the 
balance  sheet  you  are  asked  to  certify.     Can  you  suggest  steps 
which  will  enable  you  to  do  this  without  risk  of  overlooking 
serious  overstatement? 

11.  In  auditing  the  books  of  a  club  with  a  restaurant,  bar  and  cigar- 
stand  you  are  not  satisfied  that  supplies  are  properly  accounted 
for,  although  an  inventory  is  supposed  to  be  taken  every  month. 
How  would  you  set  about  verifying  your  suspicions  regarding 
the  more  expensive  commodities  (wine,  liquors  and  cigars)  ? 


MICHIGAN  C.  P.  A.  MANUAL  189 

12.  Indicate  what  would  guide  you  in  examining  and  criticizing 
accounts  receivable  carried  on  the  branch  office  books  of  a  bus- 
iness. What  would  you  require  before : 

(a)  Accepting  the  debts  as  good  or 

(b)  Writing  off  those  you  were  told  were  bad? 


AUDITING 


Tuesday,  June  10,  1919,  from  8:00  A.  M.  to  n  :oo  A.  M. 


1.  (a)   How  will  you  check  cash  receipts  and  verify  cash  balances? 
(b)   How  will  you  verify  inventories? 

2.  (a)   Illustrate  different  kinds  of  secret  reserves. 

(b)  Are  secret  reserves  legal? 

(c)  How  should  they  be  treated  ? 

(d)  What  is  watered  stock? 

(e)  How  should  it  be  treated  in  audit  reports? 

3.  Prepare  a  detailed  statement  of  procedure  of  an  audit  which 
you  have  made  within  one  year. 

4.  (a)   A  corporation  has  been  organized  with  both  preferred  and 

common  stock,  the  preferred  carrying  cumulative  divi- 
dends. How  will  you  indicate  arrears  in  dividends  on  the 
preferred  stock? 

(b)  How  will  you  show  in  the  balance  .sheet  bonds  which  have 
been  put  up  as  collateral  and  the  indebtedness  for  which 
they  are  collateral  ? 

5.  If  the  state  should  pass  a  law  placing  all  persons,  partnerships, 
and  corporations  dealing  in  real  estate  under  the  supervision 
of  the  banking  commissioner  and  you  were  appointed  as  head 
of  a  division  having  charge  of  them,  what  points  would  you 
instruct  your  inspectors  to  specially  observe  in  making  their 
audits  ? 


190  MICHIGAN  C.  P.  A.  MANUAL 

6.  A  is  a  holding  company  controlling  B,  which  is  a  company  own- 
ing natural  resources,  C,  which  is  a  company  using  said  nat- 
ural resources  as  a  basic  material  in  manufacturing,  and  D, 
which  is  a  company  selling  the  output  of  the  factory.    You  are 
auditing  the  books  of  A.    What  steps  should  be  taken  to  verify 
inter-company  transactions?    If  the  books  of  B,  C,  and  D  are 
not  available,  and  balance  sheets  and  profit  and  loss  statements 
are,  under  what  conditions  can  you  safely  use  them? 

7.  (a)   Explain  how  sinking  funds  are  created,  carried,  and  dis- 

posed of? 

(b)  Make  the  entries  illustrating  the  sale  of  bonds  at  a  discount 
and  at  a  premium. 

(c)  Appreciation  of  real  estate  has  occurred  to  such  an  extent 
as  to  present  a  largely  increased  surplus,  what  will  you 
say  to  this  in  your  report. 

8.  Name  five  common   methods   of   defalcation  and   explain  the 
steps  which  you  would  suggest  to  detect  each  of  them. 

9.  The  total  expense  of  a  department  for  a  month  is  $4,000,  the 
total  production  pay-roll   of  the   department   for  a  month   is 
$2,000.   The  men  worked  26  days  an  average  of  Sj/2  hours  per 
day.     The  department  has  sixteen  machines  each  of  which  has 
an  operator,  one  assistant  helper  is  employed  for  each  4  ma- 
chines and  one  foreman  is  employed;  what  is  the  hourly  pro- 
cess rate? 

10.  (a)  A  manufacturing  concern  issued  bonds  and  transferred 
them  to  the  contractor  who  erected  the  plant  at  90  but 
charged  the  same  to  the  building  account  at  100.  Explain 
in  full  whether  or  not  this  is  right. 

(b)  In  consolidating  two  banks  at  what  value  should  the  bond 
investments  be  set  up? 


COMMERCIAL  LAW 


MICHIGAN  C.  P.  A.  MANUAL  193 

COMMERCIAL  LAW 


Saturday,  December  18,  1915,  from  8:00  A.  M.  to  12:00  M. 


J.    (a)   Give  a  definition  of  kiting  transactions  as  applied  to  com- 
mercial paper. 

(b)  Give  a  concrete  example  of  kiting  checks. 

(c)  Give  a  concrete  example  of  kiting  drafts. 

(d)  If  a  bank  knew  that  one  of  its  customers  habitually  kited 
checks  and  drafts  placing  them  to  the  credit  of  his  account 
at  the  bank,  would  it  be  a  holder  in  due  course  with  refer- 
ence to  such  depositor's  paper? 

2.  (a)   How  many  subscribers  are  necessary  to  form  a  corpora- 

tion under  Act  232  as  amended  of  the  Public  Acts  of  Mich- 
igan for  1903  relative  to  the  formation  of  manufacturing 
and  mercantile  companies? 

(b)  What  are  the  minimum  and  maximum  amounts  for  which 
a  company  can  be  incorporated  under  this  Act  ? 

(c)  What  is  the  difference  between  authorized  capital  stock, 
subscribed  capital  stock,  and  paid  up  capital  stock? 

(d)  What  information  must  be  contained  in  the  corporation's 
annual  report  to  the  Secretary  of  State? 

(e)  What  is  the  purpose  of  this  annual  report  and  what  conse- 
quences may  be  visited  upon  the  company  for  not  riling  it  ? 

3.  (a)   Assuming  that  a  Michigan  firm  has  signed  articles  of  co- 

partnership, what  other  initial  step  is  necessary  before  it 
can  commence  business? 

(b)  If  such  firm  enters  into  contracts  without  taking  the  step 
indicated  by  your  answer  to  the  foregoing  question,  can 
such  contracts  be  enforced  in  Court  at  the  instance  of  the 
co-partnership  ? 

(c)  Can  they  be  enforced  in  Court  against  the  offending  part- 
nership ? 

(d)  What  initial  step  is  necessary  before  a  person  can  do  bus- 
iness in  Michigan  under  a  fictitious  or  assumed  name? 

(e)  What  consequences  will  be  visited  upon  a  person  who  does 
business  in  Michigan  under  a  fictitious  or  assumed  nam? 
without  complying  with  the  law  indicated  in  your  answer 
to  the  foregoing  question  ? 


194  MICHIGAN  C.  P.  A.  MANUAL 

4.  (a)   Give  an  exposition  of  the  rights,  duties  and  liabilities  of 

a  warehouseman. 

(b)  Give  an  exposition  of  the  rights,  duties  and  liabilities  of  the 
holder  of  a  warehouse  receipt. 

(c)  What  is  meant  by  the  lien  of  a  warehouseman? 

(d)  What  is  the  purpose  of  uniform  warehouse  receipt  laws? 

5.  (a)  When  was  the  present  Bankruptcy  Law  enacted? 

(b)  Is  the  Bankruptcy  Law  of  state  of  federal  origin? 

(c)  What  is  the  purpose  of  bankruptcy  laws? 

(d)  Distinguish  between  Trustee  in  Bankruptcy  and  Referee 
in  Bankruptcy  and  give  the  general  duties  of  each. 

(e)  What  are  some  of  the  debts  not  dischargeable  in  bank- 
ruptcy ? 

6.  (a)  Jones,  a  Detroit  merchant,  is  about  to  sell  his  stock  of  mer- 

chandise to  Smith.    Enumerate  the  legal  steps  Smith  should 
insist  upon  before  parting  with  his  money. 

(b)  Does  the  Bulk  Sales  Law  apply  to  a  sale  of  a  stock  of 
merchandise  having  a  value  not  exceeding  $250.00,  provid- 
ing the  retailing  of  such  stock  is  the  business  in  which  the 
vendor  is  principally  engaged? 

(c)  Does  the  Bulk  Sales  Law  apply  to  a  transfer  by  foreclos- 
ure of  a  chattel  mortgage? 

(d)  Do  general  creditors  as  well  as  merchandise  creditors  have 
to  be  served  with  notice  under  the  Bulk  Sales  Law  ? 

.  (e)  If  you  were  auditing  the  books  of  a  mercantile  institution 
preparatory  to  a  purchase  of  the  stock  and  business  by 
your  client,  would  you  suggest  to  your  employer  the  ob- 
servance of  the  Bulk  Sales  Law? 

7.  (a)   Name  two  instances  in  which  building  and  loan  associa- 

tions  possess   preferential   immunity   under   the   laws   of 
Michigan. 

(b)   Give  the  reasons  advanced  by  such  associations   for  the 
special  privileges  they  enjoy  under  the  law. 

8.  (a)   Is  a  promissory  note  dated  and  delivered  on  Sunday  valid? 

(b)  Is  a  promissory  note  dated  and  delivered  on  a  legal  holiday 
valid? 

(c)  Is  it  necessary  to  protest  foreign  bills  of  exchange  under 
the  Negotiable  Instrument  Law? 


MICHIGAN  C.  P.  A.  MANUAL  195 

(d)  Jones  gives  Smith  his  note  and  the  latter  sells  the  note  to 
a  bank  in  due  course.     Enumerate  the  legal  steps  which 
should  be  taken  by  the  bank  at  maturity  of  the  note. 

(e)  Are  days  of  grace  allowable  under  the  Negotiable  Instru- 
ment Law  of  Michigan? 

9.    (a)   What  rate  of  interest  should  be  computed  on  a  contract 
which  calls  for  interest  but  does  not  specify  the  rate? 

(b)  Jones   loans   Smith  $1,000.00  taking   Smith's   promissory 
note  payable  in  one  year  with  interest  at  the  rate  of  eight 
per  cent  per  annum.     What  amount  can  Smith  be  com- 
pelled to  pay  at  maturity  ? 

(c)  What  is  usury? 

(d)  If  a  bank  or  any  other  person  or  institution  loans  money 
on   real   estate  mortgage   reserving  interest  at  seven  per 
cent  per  annum  and  requires  the  mortgagor  to  pay  the 
mortgage  tax,  what  is  the  legal  status  of  this  transaction? 

(e)  If  a  forged  promissory  note  gets  into  the  hands  of  a  bona 
fide  purchaser  for  value  and  without  notice,  can  he  enforce 
payment  against  the  party  whose  name  is  forged? 

10.  (a)  Can  a  husband  and  wife  become  business  partners  in  Mich- 
igan so  as  to  render  the  wife  personally  liable  for  the  part- 
nership debts? 

(b)  A  husband  and  wife  purchased  property   for  their  joint 
use  giving  their  joint  note.    Is  the  wife  liable  on  such  note? 

(c)  A  married  woman  having  property  in  her  own  name  signs 
a  bond  as  surety.     Is  she  liable  on  such  bond? 

(d)  Can  the  holder  in  due  course  of  a  check  enforce  payment 
against  the  maker  where  the  latter  stops  payment  before 
the  check  is  honored  by  the  bank  upon  which  it  is  drawn? 


COMMERCIAL  LAW 


Friday,  December  22,  1916,  from  8:00  A.  M.  to  12:00  M. 


I.   (a)   What  is  a  municipal  corporation? 

(b)  What  is  a  public  utility  corporation? 

(c)  Classify  the   following  corporations:     cities,     townships, 
school  districts,   street  railway  companies,   railroad  com- 
panies, automobile  manufacturing  companies,  banks,  tele- 
phone companies. 


I96  MICHIGAN  C.  P.  A.  MANUAL 

2.  (a)  What  is  meant  by  the  commission  form  of  government? 

(b)  Name  the  advantages  and  disadvantages  of  this  system  of 
government. 

(c)  What  is  meant  by  the  general  manager  plan  in  connection 
with  municipal  government? 

(d)  About  how  many  cities  in  the  United  States  are  now  oper- 
ating under  the  commission  form  of  government? 

3.  (a)   What  fundamental  principle  underlies  Workmen's   Com- 

pensation Laws? 

(b)  Does  the  operation  of  this  law  affect  the  profits  of  the  em- 
ployer, or  the  cost  of  the  product,  or  both? 

(c)  What  is  an  occupational  disease? 

4.  (a)   What  is  interstate  commerce  ? 

(b)  What  is  intrastate  commerce? 

(c)  Which  of  these  is  within  the  jurisdiction  of  the  states  and 
which  within  the  jurisdiction  of  the  federal  government? 

(d)  What  is  the  purpose  of  the  Federal  Trade  Commission? 

(e)  Does  the  Federal  Trade  Commission  have  jurisdiction  over 
any  of  the  following:   state  or  national  banks;  railroads; 
intrastate  commerce  ? 

5.  (a)   What  are  the  arguments  or  reasons  favoring  the  formation 

of  a  partnership  to  conduct  a  business? 

(b)  What  are  the  reasons  favoring  the  formation  of  a  corpor- 
ation ? 

(c)  How  may  the  form  of  organization  affect  the  following: 
taxation;  credit  of  company;  liability  of  members;  disso- 
lution of  company? 

(d)  What  is  a  special  partnership? 

6.  (a)   What  are  the  reasons  favoring  the  formation  of  a  corpora- 

tion to  conduct  a  business  ? 

(b)  What  is  the  minimum  number  of  stockholders  required  to 
form  a  corporation  in  Michigan? 

(c)  What  is  the  status  of  the  company  if  all  of  the  stock  is 
purchased  by  one  stockholder? 

(d)  Can  a  legal  dissolution  be  effected  by  a  sale  of  all  of  the 
corporate  assets  and  the  filing  of  a  notice  with  the  Secre- 
tary of  State,  or  must  other  steps  be  taken? 

(e)  Is  it  necessary  that  the  secretary  of  a  corporation  be  a 
stockholder  and  director? 


MICHIGAN  C.  P.  A.  MANUAL  197 

7.  (a)   What  is  an  express  contract?     Give  an  illustration. 

(b)  What  is  an  implied  contract?    Give  an  illustration. 

(c)  What  is  a  void  contract?    Give  an  illustration. 

(d)  What  is  a  voidable  contract?    Give  an  illustration. 

(e)  What  is  a  unilateral  contract?    Give  an  illustration. 

8.  (a)   What  is  a  wagering  contract? 

(b)  Are  wagering  contracts  enforceable? 

(c)  What  is  novation  in  the  law  of  contracts? 

(d)  What  is  duress? 

9.  (a)   What  are  the  rules  for  the  appropriation  of  payments  made 

by  a  person  wrho  owes  several  debts  to  the  same  creditor? 
(b)   How  should  a  payment  on  an  interest  bearing  debt  be  ap- 
plied? 

10.  (a)   When  do  taxes  become  a  lien  on  real  estate  in  Michigan, 

in  the  absence  of  special  charter  provisions? 

(b)  Land  is  conveyed  by  warranty  deed  after  the  assessment 
roll  is  completed  but  before  the  taxes  become  a  lien.    Who 
must  pay  the  taxes, — the  grantor  or  grantee? 

(c)  Jones  owns  a  stock  of  merchandise  which  is  assessed  to 
him  at  $10,000.00  for  1916.     In  September,  1916,  he  sells 
the  stock  to  Smith,  warranting  it  free  from  liens,  etc.    Who 
must  pay  the  1916  taxes? 

11.  (a)   What  is  the  Statute  of  Frauds  as  applied  to  real  estate? 

(b)   What  is  the  Statute  of  Frauds  as  applied  to  personal  prop- 
erty? 

'  (c)   Can  a  real  estate  agent  recover  commission  if  the  contract 
with  his  principal  is  not  in  writing? 

12.  (a)   What  is  meant  by  a  joint  deed? 

(b)  When  one  of  two  joint  tenants  dies,  is  his  interest  in  the 
joint  deed  property  a  part  of  his  estate? 

(c)  What  are  the  advantages  and  what  the  disadvantages  of 
holding  real  estate  by  joint  deed? 

13.  (a)   The  Michigan  law  (Act  164  of  1913)  requires  all  copart- 

nerships to  file  with  th^  county  clerk  of  the  county  where 
their  business  is  located,  a  certificate,  and  provides  a  pen- 
alty for  doing  business  without  compliance  with  this  law. 
What  information  must  be  contained  in  this  certificate? 


I98  MICHIGAN  C.  P.  A.  MANUAL 

(b)  What  is  the  status  of  contracts  made  by  firms  where  no 
certificate  has  been  filed? 

14.  (a)   What  contracts  can  married  women  enter  into  in  Michi- 

gan? 

(b)  Is  a  married  woman's  endorsement  on  a  note  or  her  signa- 
ture as  surety  on  a  bond,  legal  and  binding  if  she  has  prop- 
erty in  her  own  name? 

15.  (a)   What  is  the  legal  rate  of  interest  in  Michigan,  and  what  is 

the  contract  rate? 

(b)  A  promissory  note  is  silent  upon  the  subject  of  interest. 
Does  this  note  draw  interest,  and  if  so,  at  what  rate,  and 
from  what  date? 


COMMERCIAL  LAW 


Thursday,  November  15,  1917,  from  1 130  P.  M.  to  5:00  P.  M. 


The  Negotiable  Instrument  and  Bankruptcy  Acts  will  govern 
the  correctness  of  the  answers  of  questions  I  to  6  inclusive. 


NEGOTIABLE  INSTRUMENTS 
Answer  two  of  the  following  four  questions 

1.  What  is  the  purpose  of  a  protest?    What  instruments  must  be 
and  what  may  be  protested?     What  instruments  need  no  pro- 
test? 

2.  Is  the  following  note  negotiable  or  not?    Give  reasons. 

New  York,  October  I,  1917. 

One  month  after  date  I  promise  to  pay  to  John  Smith  Five 
Hundred  Dollars  for  value  received,  negotiable  and  payable 
without  defalcation  or  discount. 

(Signed)  HENRY  JONES. 

3.  What  is  the  legal  effect  of  endorsing  an  instrument  in  blank? 

4.  A  past  due  note,  endorsed  by  the  payee,  but  not  marked  paid, 
is  found  by  an  administrator  among  the  deceased  maker's  ef- 
fects.    What  is  the  rule  of  law  as  to  the  presumption  of  its 
payment  ? 


MICHIGAN  C.  P.  A.  MANUAL  199 

BANKRUPTCY 
Answer  one  of  the  two  following  questions 

5.  Who  may  take  advantage  of  the  Bankruptcy  Act  voluntarily, 
and  who  may  be  forced  into  involuntary  bankruptcy? 

6.  Mention  the  principal  acts  which  constitute  acts  of  bankruptcy. 


Answers  to  the  following  questions  are  governed  by  the 
common  law 


CONTRACTS 
Answer  two  of  the  three  following  questions 

7.  What  does  a  seller  impliedly  warrant  in  the  sale  of  a  chattel? 

8.  When  may  a  creditor  enforce  a  contract  with  a  minor? 

9.  Explain  what  is  meant  by : 

a.  An  executory  contract  f.    An  express  contract 

b.  An  executed  contract  g.    A  covenant 

c.  A  void  contract  (Give  example) 

d.  An  implied  contract  (Give  example) 

e.  A  voidable  contract  (Give  example) 

CORPORATIONS 
Answer  two  of  the  three  following  questions 

10.  What  is  meant  by  cumulative  voting?    Describe  and  state  when 
it  is  frequently  practised. 

11.  The  president  and  secretary  of  a  mercantile  corporation  seal, 
execute  and  deliver  in  the  company's  name  a  mortgage  on  the 
company's  real  estate,  without  the  authority  of  the  directors. 
The  company  receives  adequate  value  therefor.    Can  the  holder 
foreclose  in  the  case  of  default?    Give  reasons. 

12.  Describe  briefly  the  more  important  powers  and  duties  of  the 
directors  of  a  mercantile  or  manufacturing  corporation,   and 
state  some  acts  ( i )  which  would  render  the  directors  personally 
liable  (2)  be  ultra  vires  on  the  part  of  the  corporation.     Ex- 
plain what  ultra  vires  means. 

PARTNERSHIP  . 
Answer  both  of  the  following  questions 

13.  A,  B,  and  C  respectively  contribute  ten,  eight  and  six  thousand 
dollars  to  the  capital  of  a  partnership.    How  should  the  result- 
ing losses  and  gains  be  distributed  in  the  absence  of  any  agree- 
ment as  to  their  distribution? 


200  MICHIGAN  C.  P.  A.  MANUAL 

14.  A  and  B  are  partners.  A  dies.  The  assets  are  found  to  be  worth 
only  75%of  the  liabilities  in  liquidation.  A's  estate  is  solvent, 
while  B  is  insolvent.  What  are  the  rights  of  the  firm's  creditors 
against  A's  assets  not  invested  in  the  partnership,  and  what  are 
the  rights  of  B's  personal  creditors  as  to  the  partnership  assets  ? 
State  the  rule  governing  such  cases. 


INCOME:  TAX 

Answer  one  of  the  two  following  questions 

15.  Under  what  circumstances  and  to  what  extent  may  losses  in- 
curred in  speculation  be  declared  from  gross  income  of  an  in- 
dividual and  a  corporation  respectively  in  ascertaining  net  in- 
come subject  to  the  Federal  Income  Tax? 

16.  When  must  returns  of  net  income  be  made  under  the  Federal 
Income  Tax  Law  and  when 'is  the  tax  thereon  payable?  Who 
are  required  to  make  such  returns  ? 


COMMERCIAL  LAW 


Thursday,  May  16,  1918,  from  2  :oo  P.  M.  to  5  130  P.  M. 


Give  your  reasons  for  all  answers. 

The  Negotiable  Instrument  Act  will  govern  the  correctness 
of  the  answers  I  to  6  inclusive. 


NEGOTIABLE;  INSTRUMENTS 

Answer  three  of  the  following  six  questions  but  no  more 
A  promissory  note  is  by  its  terms  payable  in  stated  instalments 
with  a  provision  that  upon  default  in  payment  of  any  instalment 
or  interest  the  whole  shall  become  due.    To  what  extent  is  the 
note  affected  thereby? 

A  executes  and  delivers  to  B  an  undated  negotiable  note,  pay- 
able 60  days  after  date.  B  inserts  a  wrong  date  (not  the  date 
of  delivery)  and  the  note  passes  in  due  course  to  C.  What  is 
the  effect  of  the  insertion  as  to  the  maturity  of  note  as  to  C? 
Does  it  avoid  the  instrument  in  his  hands? 
Must  the  authority  of  an  agent  to  execute  and  deliver  notes  or 
checks  for  and  on  behalf  of  a  principal  be  in  writing? 


MICHIGAN  C.  P.  A.  MANUAL  2oi 

4.  The  following  note  passes  in  due  course  to  an  endorsee.     The 
agent  has  exceeded  his  authority  in  executing  and  delivering 
the  note.    Is  the  principal  liable  or  not? 

New  York,  February  20,  1918. 

Thirty  days  after  date  I  promise  to  pay  to  the  order  of 
A  B  One  Thousand  Dollars. 

Signed,  JNO.  HENDERSON, 

By  Wm.  Henderson, 

Atty.-in-Fact. 

5.  What  is  the  legal  effect  of  a  forged  signature  to  a  negotiable 
instrument  ? 

6.  What  correction  may  a  payee  or  endorsee  whose  name  has  been 
improperly  spelled  in  a  negotiable  instrument  make? 


Answers  to  questions  7  to  17  are  governed  by  the 
common  law. 


CONTRACTS 

Answer  three  of  the  next  following  five  questions  and  no  more 

7.  When  is  time  of  the  essence  of  a  contract  (a)  at  law,  (b)  in 
equity  ? 

8.  What  is  the  rule  for  the  appropriation  of  payments  made  by 
a  person  who  owes  several  interest  bearing  debts  to  the  same 
creditor? 

9.  What  is  a  tender  to  perform  a  contract  and  what  is  its  effect? 
10.    In  what  ways  may  a  contract  be  discharged  by  operation  of 

law? 

n.    When  was  a  sale  complete  so  as  to  pass  title  at  common  law, 
and  how  did  the  statute  of  frauds  and  perjuries  change  this? 

CORPORATIONS 

Answer  two  of  the  following  five  questions  but  no  more 

12.  What  is  the  distinction  between  the  capital  and  the  capital  stock 
of  a  corporation  and  how  is  the  value  of  the  stock  measured 
and  determined? 

13.  Under  what  conditions  may  a  corporation  become  the  owner 
of  its  own  capital  stock? 

14.  What  are  the  characteristics  of  preferred  stock,  and  what  are 
the  rights  of  the  holders  thereof  as  to  dividends  and  guaran- 
teed  dividends   and   preference   in   distribution   of   capital   on 
liquidation  ? 


202  MICHIGAN  C.  P.  A.  MANUAL 

15.  Is  the  agreement  between  the  shareholder  and  the  corporation 
that  all  shares  shall  be  deemed  fully  paid  up  effectual  as  against 
creditors  ?    Explain. 

16.  What  is  the  preference  on  the  part  of  stockholders  to  subscribe 
to  new  shares  upon  increase  of  capital? 

PARTNERSHIP 
Answer  to  this  question  is  required 

17.  What  are  the  rules  which  must  be  observed  in  adjusting  the 
accounts  of  partners  in  liquidation : 

(1)  As  to  payment  of  losses 

(2)  As  to  application  of  assets? 

INCOME:  TAX 

Answers  to  this  question  are  governed  by  federal  tax  laws 
and  are  required. 

18.  What  are  the  provisions  of  the  income  tax  and  war  tax  laws 
as  to  the  deduction  from  profits  of  the  amounts  paid  for  in- 
come tax  and  war  or  excess  profits  tax  during  the  fiscal  or 
calendar  year  ? 


COMMERCIAL  LAW 


Monday,  November  18,  1918,  from  2:00  P.  M.  to  5:30  P.  M. 


Give  your  reasons  for  all  answers. 


NEGOTIABLE  INSTRUMENTS 
Answer  three  only  of  the  following  five  questions 

1.  A  note  non-negotiable  in  form  is  executed  and  delivered  by  A 
to  B  and  endorsed  by  B  to  C.    A  refuses  to  pay  it  when  due, 
claiming  want  of  consideration.     C  brings  suit  against  A,  aver- 
ring that  he  was  a  holder  in  due  course.     Can  A  successfully 
defend  the  action  if  want  of  consideration  is  established?   Give 
reasons. 

2.  Suppose  that  the  above  note  had  been  negotiable,  would  A's 
defense  of  want  of  consideration  be  a  bar  to  C's  recovery  or 
not  ?    Give  reasons  and  state  the  rule  applicable  to  the  principle 
involved  in  this  and  the  foregoing  question. 

3.  Define  a  negotiable  bill  of  exchange. 


MICHIGAN  C.  P.  A.  MANUAL  203 

4.  State  three  cases  in  which  the  alteration  of  an  executed  and 
delivered  note  becomes  material. 

5.  A  negotiable  note  executed  and  delivered  by  A  to  B  passes  in 
due  course  to  and  is  endorsed  in  blank  by  B,  C,  D  and  E ;  F  is 
the  last  holder  and  strikes  out  C's  endorsement.     What  is  the 
liability  of  C,  D  and  E  on  their  endorsement? 

CONTRACTS 
Answer  three  only  of  the  following  five  questions 

1.  What  is  the  right  of  stoppage  in  transitu  of  goods,  wares  and 
merchandise  by  the  seller? 

2.  Define  consideration  in  the  law  of  contracts,  and  distinguish  be- 
tween a  good  and  a  valuable  consideration. 

3.  When  can  an  offer  to  perform  a  contract  be  withdrawn? 

4.  What  are  "goods,  wares  and  merchandise"  within  the  meaning 
of  the  statute  of  frauds? 

5.  (a)   Define  mistake  and  give  its  effect  on  .contracts, 
(b)   Define  misrepresentation  and  state  its  effect. 

CORPORATIONS 
Answer  two  only  of  the  following  four  questions 

1.  Name  some  powers  impliedly  conferred  on  every  corporation. 

2.  Name  some  powers  which  will  not  be  implied. 

3.  Has  a  stockholder  a  right  to  examine  the  books  of  a  corpora- 
tion?   If  so,  for  what  purpose? 

4.  What  right  has  a  stockholder  to  a  share  of  the  profits  of  a. cor- 
porate business?. 

PARTNERSHIP 
Answer  one  only  of  the  following  questions 

1.  Can  one  partner  transfer  his  interest  to  a  stranger  without  con- 
sent of  his  co-partners  ? 

2.  Describe  general,  special,  ostensible,  secret  and  silent  partners. 

FEDERAL  TAXES 
Answer  both  of  the  following  questions 

1.  Are  domestic  partnerships  obliged  to  make  income  tax  returns? 

2.  Is  the  income  of  interest  on  Liberty  bond  issues  taxable  under 
the  law  in  force  July  i,  1918?    If  so,  to  what  extent? 


204  MICHIGAN  C.  P.  A.  MANUAL 

COMMERCIAL  LAW 


Monday,  June  9,  1919,  from  8:00  A.  M.  to  12:00  M. 


1.  (a)   What  is  a  common  carrier? 

(b)  What  is  the  difference  between  intra-state  and  inter-state 
commerce  ? 

(c)  Which  is  controlled  by  the  federal  and  which  by  the  state 
governments  ? 

(d)  To  what  extent   and    upon  what  theory  did    the  federal 
government  enlarge  its  jurisdiction  over  commerce  during 
the  Great  War? 

(e)  What  is  the  difference  between  a  straight  and  an  order 
bill  of  lading? 

2.  (a)   Name  the  principal  classes  of  public  service  corporations. 

(b)  What  is  the  minimum  number  of  stockholders  who  may 
incorporate  in  Michigan? 

(c)  If  all  of  the  stock  of  a  corporation  is  transferred  to  one 
person,  what  effect  does  that  have  on  (i).  its  corporate  life 
and  (2)  on  its  power  to  further  transact  business? 

(d)  Name  two  ways  in  which  a  Michigan  corporation  can  be 
legally  dissolved? 

(e)  Must  every  director  be  a  stockholder? 

(f )  Are  the  executive  officers  such  as  president,  vice-president, 
secretary  and  treasurer  elected  by  the  stockholders  or  by 
the  directors? 

(g)  Must  all  of  these  executive  officers  be  stockholders,  and 
if  not,  which  must  and  which  need  'not  be  stockholders? 

3.  (a)   Was  the  power  of  one  corporation  to  hold  stock  in  another 

corporation  enlarged  by  Act  254  of  1917  in  Michigan  and 
if  so,  to  what  extent? 

(b)  What  do  you  understand  by  a  subsidiary  corporation? 

(c)  What  is  meant  by  preferred  stock  being  preferred  both  as 
to  assets  and  dividends? 

(c)  When  may  preferred  stock  participate  in  the  election  of 
directors  ? 

(d)  A  Michigan  corporation  has  $500,000  common  stock  paid 
in  and  $100,000  preferred  stock  paid  in ;  how  much  addi- 
tional preferred  stock  can  its  stockholders  authorize  ? 

(e)  What  is  meant  by  the  stockholders  cumulative  voting  law 
and  what  is  its  purpose? 


MICHIGAN  C.  P..  A.  MANUAL 


205 


({)  What  are  the  maximum  and  minimum  amounts  for  which 
a  company  may  be  incorporated  in  Michigan? 

(g)  Under  the  decision  in  Dodge  v.  Ford  Motor  Co.,  204  Mich. 
459 :  ( i )  Is.  there  any  limit  to  the  amount  of  capital  assets 
which  a  corporation  may  have?  (2)  What  distinction  is 
made  between  capital  stock  and  capital  assets?  (3)  What 
rule  is  laid  down  relative  to  the  duty  of  directors  to  de- 
clare dividends? 

(h)  What  percentage  of  the  authorized  capital  stock  must  be 
subscribed  and  what  percentage  paid  in  before  a  company 
can  incorporate  in  Michigan? 

4.  (a)   What  is  usury? 

(b)  What  is  the  contract  rate,  and  what  the  legal  rate  of  inter- 
est in  Michigan? 

(c)  If  A  gives  B  his  note  drawing  6%  interest  and  C  purchases 
the  note  so  as  to  net  him  10%,  is  this  usury? 

5.  (a)   What  persons  are  incapable  in  law  of  making  contracts? 

(b)  Are  contracts  made  on  Sunday  valid  in  Michigan? 

(c)  Are   contracts   made   on   legal   holidays   or   election   days 
valid? 

(d)  What  contracts  must  be  in  writing? 

6.  (a)   If  property  in  Michigan  is  deeded  to  husband  and  wife 

without  defining  the  interest  of  each,  ( I )  Is  the  interest  of 
either  subject  to  execution  for  his  debts?  and  (2)  When 
one  dies  is  it  necessary  to  probate  his  estate  in  order  to 
show  good  title  to  such  real  estate  in  the  surviving  spouse  ? 

(b)  Can  two  persons  deposit  money  in  the  bank  in  such  wise 
that  on  the  death  of  one,  the  fund  will  pass  to  the  survivor 
without   probate   proceedings?      If    so,    suggest   a   proper 
form  for  such  deposit? 

(c)  If  man  and  wife  sell  real  estate  taking  back  a  purchase 
money  mortgage  to  them  jointly,  and  one  of  them  dies, 
does  the  interest  of  the  deceased  in  the  mortgage  pass  to 
the  survivor  without  probate  proceedings? 

(d)  Give  your  idea  of  what  title  notes  or  contracts  must  and 
what  need  not  be  filed  with  the  clerk  in  order  to-be  good  as 
to  third  parties  and   creditors   under  the   recent  case   of 
Young  v.  Phillips? 

(e)  Give  your  idea  of  the  difference  between  a  pure  contract 
of  conditional  sale  and  a  title  note  where  the  purpose  is 
securitv  ? 


2o6  MICHIGAN  C.  P.  A.  MANUAL 

7.  (a)   Is  the  Bankruptcy  Act  a  state  law  or  a  federal  law? 

(b)  In  what  year  was  it  adopted? 

(c)  What  are  the  respective  functions  of  a  Receiver,  a  Refer- 
ee and  a  Trustee  in  Bankruptcy? 

(d)  Is  the  interest  of  the  vendor  in  a  land  contract  covering 
Michigan  land  taxable  under  the  mortgage  tax  law? 

(e)  If  so,  can  this  tax  be  paid  without  having  the  contract  re- 
corded ? 

(f)  What  is  meant  by  a  merchantable  title  to  real  estate? 

8.  (a)  Jones,  a  resident  of  Michigan,  owns  bonds  issued  by  Mich- 

igan municipalities  prior  to  September  I,   1909;  are  they 
subject  to  state,  county  and  city,  etc.,  taxes? 

(b)  He  owns  Michigan  municipal  bonds  issued  since  that  date ; 
are  they  taxable? 

(c)  He  owns  bonds  issued  by  municipalities,  of  other  states; 
are  such  bonds  taxable  and  if  so,  what  is  the  amount  of  the 
tax ;  where  must  he  pay  it ;  and  will  one  payment  be  suffi- 
cient for  the  life  of  the  bonds  or  must  it  be  paid  annually  ? 

(d)  What  theory  underlies  taxes  for  local  improvements? 

9.  (a)   When  was  the  new  Federal  Revenue  Law  signed  by  the 

President  ? 

(b)  Under  this  law,  what  is  the  normal  income  tax  rate   (i) 
for  individuals  for  taxable  year  1918;  (2)  for  individuals 
for  taxable  year  1919;   (3)    for  corporations  for  taxable 
year  1918;  (4)  for  corporations  for  taxable  year  1919? 

(c)  Under  this  law  will  the  surtax  rates  for  taxable  year  1918 
vary  from  surtax  rates  for  taxable  year  1919? 

(d)  Under  this  law,  are  individuals  and  partnerships  subject 
to  the  excess  profits  and  war  profits  taxes?    Give  reasons 
which  prompted  Congress  to  its  conclusion  on  this  ques- 
tion ? 

(e)  Under  this  law  what  are  the  excess  profits  tax  rate   (i) 
for  taxable  year  1918;  (2)  for  taxable  year  1919? 

(f)  Will  corporations  be  required  to  pay  War  Profits  taxes  for 
taxable  year  1919  if  law  remains  unchanged? 

(g)  Compare  the  capital  stock  provisions  of  the  new  law  with 
that  of  the  prior  law  as  to  ( i )  amount  under  each  law  per 
$1,000;  (2)  exemption  under  each  law. 

(h)   Are  the  inheritance  tax  rates  greater  or  less  under  the  nev\ 
law  than  under  the  prior  law  ? 


MICHIGAN  C.  P.  A.  MANUAL  207 

10.    (a)   What  is  invested  capital  under  the  new  Revenue  Act? 

(b)  Can  the  value  of  property  conveyed  to  a  corporation  by  a 
stockholder  as  a  gift  be  treated  as  paid  in  surplus  so  as  to 
become  invested  capital?    Give  reasons. 

(c)  A  stockholder  conveys  to  a  corporation  for  a  cash  consid- 
eration of  $5,000,  property  worth  $10,000  at  the  time  of 
conveyance.  Can  the  excess  of  $5,000  be  treated  as  paid  in 
surplus  so  as  to  become  invested  capital?    Give  reasons. 

(d)  Will  invested  capital  be  increased  by  a  reappraisal  of  cap- 
ital assets? 

(e)  Will  such  reappraisal  operate  to  increase  taxable  income 
before  such  assets  are  sold? 

(f)  What  do  you  understand  by  personal  service  corporations? 

(g)  If  not  less  than  30%  of  the  net  income  of  a  corporation  is 
derived  from  a  separate  trade  or  business  or  from  a  dis- 
tinctly separate  branch  of  the  trade  or  business  in  which 
the  employment  of  capital  is  not  a  material  income  produc- 
ing factor,  briefly  what  is  the  difference  in  the  method  of 
computing  the  excess  profits  tax  ? 

(h)  In  your  judgment  are  stock  dividends  taxable  income  un- 
der the  decision  in  Towne  v.  Eisner,  and  would  you  recom- 
mend to  your  clients  that  they  return  such  dividends  as 
income  and  pay  the  tax  thereon? 

(i)  A  sells  B  for  $50,000  certain  property  which  A  purchased 
in  1914  for  $30,000  and  B  agrees  to  pay  A,  in  addition  to 
the  purchase  price,  the  income  taxes  which  A  may  be  re- 
quired to  pay  on  the  profit  of  $20,000.  Does  the  payment 
of  such  taxes  to  A  amount  to  income  to  A  which  he  will 
be  required  to  report  as  taxable  income? 

(j)  Are  contributions  made  by  a  corporation  to  religious,  char- 
itable, scientific  or  educational  corporations  deductible  from 
gross  income  for  purpose  of  ascertaining  net  taxable  in- 
come ? 


PRACTICAL  ACCOUNTING 


MICHIGAN  C.  P.  A.  MANUAL  211 

PRACTICAL  ACCOUNTING 


Friday,  December  17,  1915,  from  i  130  P.  M.  to  6:30  P.  M. 


Problems  i,  2.  3  and  two  of  last  four  required.    Ten  credits 
allowed  for  neatness  and  general  appearance. 

(25  Credits) 

The  Michigan  Machine  Works  finds  on  December  31,  1915, 
that  their  heavy  orders  make  it  undesirable  to  suspend  opera- 
tion for  inventory  taking,  but  instruct  you  to  close  the  books 
and  prepare  a  statement  on  the  basis  of  previous  years'  experi- 
ence. The  Trial  Balance  is  as  follows : 

MICHIGAN  MACHINE  WORKS 

Imprest  Cash  $  100.00 

Pay  Roll  Fund   500.00 

First  &  Old  Detroit  Nat'l  Bank..  14,000.00 

Notes  Receivable  42,000.00 

Accounts  Receivable 222,000.00 

General   Stores    550,000.00 

Productive  Labor — Factory 375,000.00 

Productive  Labor — Foundry   70,000.00 

Manufacturing  Exp. — Factory. . .  .  200,000.00 

Manufacturing    Exp. — Foundry. .  .  35,000.00 

Commercial   Expenses    125,000.00 

Real   Estate 15,000.00 

Buildings — Factory    175,000.00 

Buildings — Foundry    50,000.00 

Patterns    12,000.00 

Dies   8,000.00 

Office  Furniture  and  Fixtures.  . . .  2,500.00 

Automobiles  and  Trucks   6,000.00 

Factory  Equipment   300,000.00 

Foundry  Equipment    50,000.00 

Treasury  Stock  120,000.00 

Treasury  Bonds 150,000.00 

Taxes    4,000.00 

Bond  Issue  Expense  12,000.00 

Insurance    3,000.00 

Bills    Payable    $      160,000.00 

Notes  Receivable  Discounted 28,000.00 

Accounts  Payable  190,000.00 


212  MICHIGAN  C.  P.  A.  MANUAL 

Salaries  and  Accrued  Pay  Roll .  . .  30,000.00 

Capital  Stock  500,000.00 

Surplus 6,700.00 

Preferred  Stock  250,000.00 

Bonds    240,000.00 

Accrued  Expenses   5,000.00 

Accrued  Dividends   (Preferred)..  8,400.00 

Reserve  for  Bad  Debts 26,000.00 

Res.   for   Depreciation — Factory..  44,000.00 

Res.  for  Depreciation — Foundry. .  15,000.00 

Sales— Factory    880,000.00 

Sales— Foundry    150,000.00 

Sales— Scrap 4,000.00 

Cash  Discount  1,500.00 

Miscellaneous  Earnings   2,500.00 


$2,541,100.00    $2,541,100.00 

You  find  it  necessary  to  make  adjustments  on  account  of  these 
considerations :  Depreciation  on  Factory  Buildings,  4%  ;  Foun- 
dry Buildings,  5% ;  Factory  Equipment,  6  2-3%  ;  Foundry 
Equipment,  10%  ;  Automobiles  and  Trucks,  25%  ;  Office  Furni- 
ture, 10%  ;  Patterns,  15%;  Dies,  25%.  Apportionment  of  In- 
surance Account :  • 

Factory    $1,500.00 

Foundry   500.00 

Unexpired    1,000.00 

Apportionment  of  Taxes  Account : 

Commercial   Expense    • $1,000.00 

Factory   1,000.00 

Foundry 300.00 

Unearned   1,700.00 

The  Bonds  mature  twelve  years  later,  having  been  issued  three 

years  before. 

Analysis  of  the  results  for  the  preceding  three  years  shows  that 

the  following  percentages  obtained : 

Factory  Foundry 

Labor  in  product 33l/3%  30% 

Material  in  product .,. . .     25  30 

Manufacturing  Expense   in   product..     20  15 

Gross  Profit  2i2/3  25 


100%  100% 

Prepare  Balance  Sheet,  Manufacturing,  Trading  and  Profit  and 
Loss  Statement  and  Surplus  Account. 


MICHIGAN  C.  P.  A.  MANUAL 


213 


2.    (20  Credits) 

The  private  books  of  a  merchant  present  the  following  condi- 
tion December  31,  1915.  Assume  (i)  that  all  deductible  taxes 
have  been  retained  at  the  source,  (2)  that  he  is  married,  (3) 
that  his  wife's  income  from  her  separate  estate  is  in  excess 
of  $3,000.00.  Prepare  Income  Tax  report  on  form  herewith. 

Real  Estate $200,000.00 

Life  Annuity    60,000.00 

Town  Residence 35,000.00 

City  of  Detroit  4%  Bonds 25,000.00 

U.  S.  Lumber  Co.  ist  Mortgage  Bonds 50,000.00 

Cash  in  Band   3,250.00 

Profit  and  Loss  Account — 

Loss  on  realty  sold   $  3,000.00 

Loss  on  stock  transactions 5,000.00 

Life    Insurance    premiums "...  3,000.00 

Income   Taxes    and    tax    deductions...  1,250.00 

Depreciation — Real  Estate 5,000.00 

Depreciation — Residence    1,750.00 

Interest  on  R.  E.  Mortgage 3,000.00 

Taxes  on  Real  Estate 2,700.00 

Taxes — special   improvement    500.00 

Personal  Taxes  1,000.00 

Repairs  to  rent  property 1,000.00 

Repairs  to  residence   500.00 

Wife's   allowance 2,400.00 

Household  Expenses  3,600.00 

$33,700.00 
Profit  on  sale  of  realty  bought 

January  6,  1915   $50,000.00 

Rent  Income    12,000.00 

Salary     5,000.00 

Life  Annuity   3,000.00 

Gain  on  stock  transactions   5,000.00 

Partnership    Profits    13,000.00 

Interest  City  of  Detroit  4%   1,000.00  • 

Interest  U.  S.  Lumber  Co.  5% 2,500.00 

$91,500.00  57,800.00 

Mortgage     .'. 50,000.00 

Reserve  for  Depreciation  20,250.00 

Net  Worth   245,200.00 


$373,250.00    $373,250.00 


214  MICHIGAN  C.  P.  A.  MANUAL 

3.    (15  Credits) 

The  Natomas  Consolidated  Gold  Fields  Company  of  California 
leased  on  January  i,  1909,  -from  George  D.  Stratton  his  placer 
claims  in  the  Yuba  Valley  for  gold  dredging.  The  term  of  the 
lease  is  40  years.  The  consideration  stated  was  to  be  a  royalty 
of  50  cents  per  ounce  of  Gold  Returns,  provided  however  that 
in  no  year  would  the  payment  be  less  than  $10,000.00,  subject 
to  the  right  of  lessee  to  recover  any  excess  paid  over  royalty 
when  and  if  the  production  exceeded  20,000  ounces  in  any  one 
of  the  six  years  ending  December  31,  1914. 
From  the  following  production  report  prepare  the  proper  en- 
tries, showing  all  accounts  affected  and  transcript  of  the  lessors 
account  as  it  would  appear  on  the  books  of  the  lessee  December 
31,  1915.  Include  the  consideration  of  federal  income  tax  de- 
ducted at  the  source. 

Year  Ounces 

1909   15,226 

1910 18,394 

1911 19,626 

1912   •   25,620 

1913   26,240 

I9M   •   27,520 

4.  (15  Credits)       '9'5  '  *** 

A  contractor  proposes  to  build  a  bridge  to  Belle  Isle  and  accept 
the  City's  4%  2O-year  Bonds  to  the  amount  of  $2,000,000.00  in 
payment.  He  advocates  as  a  means  of  retiring  the  bonds  the 
establishment  of  a  toll  system  on  foot  passengers  and  automo- 
biles at  the  respective  rates  of  one  cent  and  five  cents  each. 
Assuming  the  ratio  of  foot  passengers  to  automobiles  to  be  ten 
to  one,  how  many  of  each  would  be  necessary  to  pay  the  inter- 
est annually  and  create  a  fund  which  placed  at  the  same  rate 
of  interest  would  be  sufficient  to  retire  the  bonds  at  maturity  ? 
Note:  $1.00  compounded  at  4%  for  20  years=$2.i9H23i4. 

5.  (15  Credits) 

The  Pioneer  Trust  Company  engages  you  to  revise  its  system 
of  accounting  with  a  view  to  adjusting  its  Balance  Sheet  daily, 
to  include  accruing  Earnings  and  Expenses.  With  the  follow- 
ing "Statement  of  Condition"  as  a  guide  indicate  what  proced- 
ure you  would  adopt  to  change  the  books  from  a  purely  cash  to 
the  accrual  basis.  Let  it  be  understood  that  the  loans  and  other 
securities  as  well  as  deposits  bear  various  rates  of  interest. 
Would  you  attempt  to  accrue  all  classes  of  earnings  and  ex- 
penses? 


MICHIGAN  C.  P.  A.  MANUAL  215 

RESOURCES  LIABILITIES 

Collateral    Loans     $    609,209.87      Capital    .$   500,000.00 

Loans  on  Real  Estate...    1,313,827.36      Surplus    500,000.00 

Bonds   1,247,895.76      Undivided  Profits    364,770.5 1 

Bonds  &  Mortgages  with  Trust  Deposits  3,216,205.52 

State  Treasurer  208,100.00      Accrued  Taxes 39,640.08 

Advances  to  Trusts   ....        39,866.52 
Cash  and  Due  from  Re- 
serve Agents 1,201,716.60 

Vaults,  Furniture  and 

Fixtures    Nothing 


$4,620,616.1 1  $4,620,616.1 1 

6.  (15  Credits) 

How  would  you  proceed  to  change  the  Accounting  system  of  a 
city  of  30,000  population  from  the  Receipt-Disbursement  to  the 
Balance  Sheet-Revenue  and  Expense  system  of  accounting? 

7.  (15  Credits) 

Prepare  a  chart  of  accounts  for  an  automobile  company  build- 
ing auto-trucks  exclusively.  Company  buys  all  parts  for  as- 
sembling but  maintains  a  machine  shop  for  completing  same, 
a  paint  shop  and  a  finishing  department. 

Arrange  for  monthly  closing  of  the  books  by  means  of  perpetual 
inventories  and  show  how  reports  of  material,  labor  and. burden 
should  be  handled. 


PRACTICAL  ACCOUNTING 


Friday,  December  22,  1916,  from  I  :oo  P.  M.  to  6:00  P.  M. 


Problems  i,  2,  3  and  one  of  last  two .  required. 
Ten  credits  allowed  for  neatness  and  general  appearance. 

T.     (25  Credits) 

The  Meteor  Motor  Company's  fiscal  year  closed  June  30,  1916. 
You  are  requested  to  prepare  a  Financial  Statement  and  Manu- 
facturing Trading  and  Profit  and  Loss  Account  from  the  fol- 
lowing data  taken  from  the  books  as  of  December  31,  1916: 

TRIAL  BALANCE 

Cash    $  1,836,000.00 

Accounts  Receivable,  Cars  1,580,000.00 

Parts  and  Repairs   98,000.00 


2i6  MICHIGAN  C.  P.  A.  MANUAL 

Sundry    40,000.00 

'Advances 21,000.00 

Commercial  Expenses    685,000.00 

Plant  Investment  5,440,000.00 

Car  Material  Inventory  6/30/16 2,466,000.00 

Car  Material  Purchased  from  6/30/16  12,483,000.00 
Operating  Supplies  Inventory  6/30/16  181,000.00 
Operat.  Sup.  Purchased  from  6/30/16  1,367,000.00 

Productive  Labor  from  6/30/16 2,373,000.00 

Non-Productive  Labor  from  6/30/16    2,167,000.00 

Manufacturing   Expenses    857,000.00 

Accounts   Payable    $1,115,000.00 

Dealers  Deposits    310,000.00 

Accrued  Pay  Roll 135,000.00 

Sundry  Reserves 50,000.00 

Capital  Stock 6,000,000.00 

Surplus    3,295,000.00 

Revenues — Touring  Cars 17,518,000.00 

Roadsters    '. 2,390,000.00 

Chassis    17,000.00 

Parts  and  Repairs  378,000.00 

Scrap 61,000.00 

Miscellaneous    90,000.00 

Purchase  Discounts  200,000.00 

Interest    35,000.00 


$31,594,000.00   $31,594,000.00 

It  appears  that  depreciation  of  plant  to  June  30,  1916  had 
been  written  off  the  face  of  the  account  to  the  amount  of  $344, 
ooo.oo  and  that  no  depreciation  for  the  current  year  had  been 
considered,  but  same  amounts  to  say,  $235,000.00  for  the  6 
months.  The  productive  labor  element  in  Car  Material  Inven- 
tory of  June  30,  1916  amounted  to  $182,000.00  with  correspond- 
ing overhead  of  $273,000.00.  Special  Tools,  Dies  and  Patterns 
were  erroneously  included  in  Manufacturing  Expenses  to  the 
amount  of  $450,000.00.  Also  included  in  the  latter  account 
were  taxes  and  insurance  paid  $95,000.00  with  only  $45,000.00 
accrued  or  expired. 

The  sales  of  cars  for  the  6  months  were  as  follows,  with  the 
relative  costs  as  determined  by  the  Cost  Department : 

No.        Material       Labor     Mfg.  Burden    Total 
Sold  Cost  Cost  Cost  Cost 

Touring    26,860        $350.00          $75.oo        $110.00        $535-OO 

Roadsters 3,717          35o.oo  75.00          110.00          535-OQ 

Chassis    37          275.00  60.00  88.00          423.00 


MICHIGAN  C.  P.  A.  MANUAL 


217 


Parts  and  Repairs  are  estimated  to  be  sold  at  100%  gross 
profit  and  the  ratio  of  cost  elements  correspond  with  finished 

cars. 

Miscellaneous  Sales  represent  sales  of  car  material  at  cost. 
Scrap  in  this  case  represents  a  credit  to  Profit  and  Loss. 

2,    (25  Credits) 

Smith  and,  Jones  own  all  of  the  outstanding  capital  stock  of 
the  Chemical  Company  except  one  share  necessary  to  complete 
the  corporation,  the  latter  share  having  been  assigned  to  them. 
They  also  own  $25,100.00  par,  or  251  shares,  of  the  capital 
stock  of  the  Colompr,  a  subsidiary  company,  and  an  option  on 
behalf  of  the  former  Company  to  purchase  the  entire  capital 
stock  of  the  Cadelec  Company,  M  foreign  corporation,  all  as  of 
January  I,  1916.  Statements  of  the  assets  and  liabilities  of  the 
three  companies  are  furnished  as  follows : — 

Assets  .    Chemical  Co.  Colomor  Co.  Cadelec  Co. 

Plant    $418,740.00    $46,020.00    $28,82900 

Patents  and  Good  Will . .  i.oo     

Inventories    300,000.00 

Accounts      Receivable...   159,249.00 

Sundry  Debtors    . .  .' 40,934.00 

Notes  Receivable  3,000.00 

Cash    . .  . : 76,482.00 

Prepaid   Expenses    1,175.00 


18,803.00 
21,727.00 


50,000.00 
40,889.00 


20,190.00 
204.00 


11,702.00 
440.00 


$999,581.00    $106,944.00    $131,860.00 
Liabilities 
Capital  Stock $450,000.00    $  61,600.00    $  io,coo.oo 


Current    107,329.00 

Surplus 442,252.00 


11,703.00 
33,641.00 


18,377.00 
103,483.00 


$999o8i.oo    $106,944.00    $131,860.00 

It  develops  that  the  Cadelec  figures  are  incomplete  pending 
report  on  the  appraisal  and  inventory  which  latter  when  sup- 
plied increases  the  value  of  Real  Estate  $29,050.00,  Plant  $31,- 
148.00,  and  Inventories  $16,963.00. 

A  new  company  is  formed  to  take  over  all  of  the  assets  and  lia- 
bilities of  the  parent  company,  issue  $1,000,000  preferred  stock 
which  is  sold  at  par  and  40,000  shares  of  common  stock  of  no 
par  or  nominal  value. 

Smith  and  Jones  received  $740,825.00  in  cash  and  36,390  shares 
common  stock  for  their  entire  holdings.  The  Cadelec  option  is 
exercised.  The  stockholders  of  the  Cadelec  Company  receive 


218  MICHIGAN  C.  P.  A.  MANUAL 

$115,000.00  in  cash  and  2,875  shares  in  common  stock.  The 
organizers  purchase  5  shares  of  common  stock  for  cash  at 
$100.00  each  and  agree  to  retain  in  the  treasury  funds  sufficient 
to  purchase  all  the  remaining  outstanding  shares  of  Colomor  at 
par,  together  with  2  shares  of  common  stock  of  the  new  com- 
pany for  each  share  so  outstanding. 

Prepare  a  statement  of  the  new  company  after  giving  effect  to 
the  above  transactions  and  show  also  a  consolidated  balance 
sheet, 

3.  (20  Credits) 

Taking  the  several  items  of  assets  and  liabilities  in  problem  2, 
state  briefly  the  necessary  steps  in  arriving  at  the  valuation  of 
the  capital  stock  of  the  Chemical  Company  to  warrant  the  in- 
vestment by  the  underwriters  and  to  justify  payment  therefor, 
of  $740,825.00  in  cash  and  36,390  shares  of  common  stock. 

4.  (20  Credits) 

(a)  A  Michigan  firm  pays  its  taxes  promptly  to  escape  penalty. 
On  closing  December  31,  the  tax  account  stands  as   fol- 
lows : — 

City  Taxes $2,400.00 

State  and  County  Taxes  , 1,200.00 

Income  Tax  600.00 

What  action  would  you  pursue  in  respect  to  these  balances 
in  closing  the  books  ? 

(b)  A  firm  whose  fiscal  year  closes  November  30  has  insured 
the  life  of  one  of  the  officers  for  $10,000  on  a  participating 
endowment  policy  running  ten  years ;  the  annual  premium 
is  $1,041.80  payable  July  i.    The  successive  cash  surrender 
values  are  as  follows : — 

End  of  End  of 

ist  year $   735-8o             6th  year  $  5>433-OO 

2nd  year 1,603.30             7th  year  6,494.70 

3rd  year 2,504.10              8th  year   7,599.40 

4th  year  3,439-8o             9th  year  8,750.20 

5th  year 4,412.10            loth  year   10,000.00 

The  books  are  closed  monthly.  Show  by  periods  and 
amounts  what  treatment  you  would  give  the  premiums  and 
dividends  in  the  books. 

5.  (20  Credits) 

(a)  A  Manufacturing  Corporation  with  an  outstanding  issue 
of  $500,000.00  and  a  surplus  of  $300,000.00,  with  stock 
active  on  an  Exchange,  asks  you  to  state  the  amount  and 
method  of  computing  its  Federal  capital  stock  taxes  paya- 


MICHIGAN  C.  P.  A.  MANUAL  219 

ble  in  1917.  The  stock  you  find  has  averaged  120  in  the 
market  quotations.  Show  method,  rate,  periods,  and 
amount. 

(b)   If  the  stock  were  not  active  on  exchange,  what  course 
would  you  pursue? 


PRACTICAL  ACCOUNTING 


Friday,  November  16,  1917,  from  9:00  A.  M.  to  i  :oo  P.  M. 


Candidates  are  required  to  answer  four  questions  out  of  five. 


i.    The  following  is  the  balance  sheet  of  the  A.  B.  Company,  Jan- 
uary i,  1915 : 

Cash    $  52,864      Accounts  Payable   $  35,482 

Accounts  Receivable 197,425      Dividends  Payable  preferred 

Inventories:                                                       stock  Feb.  i,  1915 7,500 

Raw  Material  ^     84,268      Dividends    Payable   common 

Finished  Goods    3T,597          stock  Feb.  i,  1915 10,000 

Office  Furniture  and  Fix-  Mortgage  Bonds  20  year  at 

tures    7,500          6%  dated  January  i,  1915..  100,000 

Land   180,060      Premium  on  Bonds 5,000 

Buildings   150,000      Capital    Stock— preferred 250,000 

Machinery    250,000      Capital  Stock— common 500,000 

Reserve  for  Bad  Debts 4,718 

Surplus 40,954 

$953,654  $953,654 

The  transactions  for  the  year  ending  January  i,  1916,  have  been 
as  follows : 

Cash    received    from    customers $793,501 

Rent  received    600 

There  has  been  purchased 

1,232,000  Ibs  raw  material  at  20  cents  per  Ib. 

Sales  have  been  823,334 

Discount  and  allowances  on  sales 23,519 

Bad  debts  written  off  2,143 

Disbursements  have  been  made  for 

Accounts  payable    243,356 

Factory  expense   7,489 

Factory  labor   35 1,426 

Factory  repairs    23,843 


220  MICHIGAN  C.  P.  A.  MANUAL. 

Office  expense    1.927 

Selling  expense 52,914 

Salaries    58,471 

Taxes    7,853 

Inventories  January  i,  1916 

Raw  material  412,595  Ibs.  having  a 
market  value  of  22  cents  per  Ib.  and 
finished  goods  $30,842.  The  land 
is  estimated  to  be  worth  $200,000. 

Semi-annual  dividends  of  3%  on  preferred  and  2%  on  com- 
mon, declared  in  June  and  December,  payable  August  i  and 
February  i.  Reserves  for  depreciation  of  buildings  3%  ;  ma- 
chinery $% ;  office  fixtures  10%.  Bad  and  doubtful  debts  re- 
serve should  be  2%  of  accounts  receivable. 

Prepare  an  operating  statement  and  balance  sheet  as  on  Jan- 
uary i,  1916. 

2.  From  the  following  accounts  appearing  on  the  trial  balance  pre- 
pare without  using  figures,  statements  which  you  consider  best 
calculated  to  set  forth  the  operations  of  the  year  and  the  finan- 
cial position  at  December  31,  1916,  assuming  that  you  are  pre- 
paring these  statements  on  behalf  of  a  bank  which  desires  paper 
available  for  rediscount  with  the  Federal  Reserve  Bank. 
Accounts  payable  Insurance  unexpired  finished  goods 

Accounts  receivable  Interest  accrued  on  investments 

Advertising  Interest  accrued  on  mortgage  payable 

Buildings  Interest  paid 

Capital  stock  Interest  received 

Capital  stock  unsubscribed  Investments 

Cash  on  deposit  Labor   factory  pay  roll 

Commissions  paid  salesmen  Land 

Depreciation  buildings  1916  Machinery 

Depreciation  machinery  1916  Material  inventory  December  31,  1915 

Discount  allowed  on  sales  Material  purchased 

Discount  received  on  purchases  Mortgage  on  plant 

Doubtful  accounts  receivable  Notes  payable 

Factory  expense  Notes  receivable 

Finished   goods   inventory   December       Office  expenses 

31,  1915  Office  furniture  and  fixtures 

Freight  and  cartage  inward  Office  pay  roll 

Freight  and  cartage  outward  Organization  expenses  (to  be  distrib- 

Fuel  uted  over  three  years  from  January 

Good-will  I,  1916) 

Insurance  buildings  and  machinery          Pay  roll  factory  accrued 
Insurance  finished  goods  Pay  roll  office  accrued 

Insurance  unexpired  buildings  and          Petty  cash 
machinery  Prepaid  taxes  real  estate 


MICHIGAN  C.  P.  A.  MANUAL  221 

Profit  and  loss   1915  surplus  Salaries  salesmen 

Repairs  buildings  Sales 

Repairs  machinery  Salesmen  accounts — advances  on 
Reserve  for  bad  and  doubtful  ac-  salaries 

counts  Subscriptions  and  donations 

Reserve  for  depreciation  buildings  Taxes  income  U.  S. 

Reserve    for   depreciation  machinery  Taxes  real  estate 

Returns  and  allowances  on  sales  Work  in  process  inventory  December 
Salaries  general  officers  31,  1915 

The  inventories  December  31,  1916,  not  on  the  books  were: 
Finished  goods  Material  work  in  process 

3.  Company  A  purchased  on  January  I,  1917,  the  entire  capital 
stock  of  Company  B  at  $175  per  share,  and  the  entire -stock  of 
Company  C  at  $80  per  share. 

You  are  handed  the  balance  sheet  as  understated  at  June  30, 
1917,  and  are  requested  to  prepare  a  consolidated  balance  sheet 
of  the  A  Company  and  its  subsidiary  companies  at  that  date. 

BALANCE  SHEET— COMPANY  A 

Property  and  good-will $   850,000      Capital  Stock  $2,250,000 

Stock    of    subsidiary    com-  Current  liabilities  150,000 

panics    1,500.000      Surplus,  January  I  525,000 

Current  assets  700,000      Undivided  profit  for  one- 
half  year  125,000 


$3,050,000  $3,050,000 

BALANCE  SHEET— COMPANY  B 

Property  and  good-will $650,000      Capital  Stock   $400,000 

Current  assets    60,000      Current  liabilities    10,000 

Surplus,  January  1 200,000 

Undivided  profit  for  one- 
half  year  100,000 


$710,000  $710,000 

BALANCE  SHEET-COMPANY  C 

Property   (as  appraised  Capital  Stock  $1,000,000 

January  i,  1917)    $1,130,000      Current  liabilities  240,000 

Current  assets 180,000      Surplus,  January  I -. . .  30,000 

Undivided  profit  for  one- 
half  year   40,000 


$1,310,000  $1,310,000 

There  are  no  intercompany  accounts  or  inventories. 
Frame  any  entries  necessary  to  record  the  action  of  the  direc- 
tors as  it  appears  in  the  minutes  of  the  meeting  of  August  15, 
1917,  of  which  the  folowing  is  a  synopsis,  and  the  action  of  the 


222  MICHIGAN  C.  P.  A.  MANUAL 

officers  taken  pursuant  to  authority  conferred  on  them  by  such 
minutes : 

The  treasurer  reported  that  the  profits  for  the  year  as  audited 
amounted  to  $59,287.  Voted  that  a  dividend  of  $40,000  be 
paid  on  October  I  to  the  stockholders  of  record  September  15 
and  that  $10,000  of  the  profits  be  appropriated  as  a  reserve  for 
relief  of  employes  disabled  while  in  the  service  of  the  United 
States  and  invested  in  Liberty  Bonds. 

The  treasurer  reported  that  he  had  an  offer  of  $1,000  in  settle- 
ment of  a  debt  of  $3,000  of  the  A.  B.  C.  Company,  which  had 
been  written  off  as  irrecoverable  in  1914.  He  was  authorized 
to  accept  the  same  in  full  settlement. 

The  president  reported  that  he  had  secured  tenders  for  new 
building  planned  in  the  amount  of  $185,000.  He  was  author- 
ized to  execute  a  contract  accordingly. 

The  president  reported  that  a  firm  of  bankers  had  offered  to 
purchase  $200,000  of  the  company's  twenty-year  5%  bonds  to 
be  dated  October  i,  1917,  at  93  and  accrued  interest.  He  was 
authorized  to  accept  the  offer  and  deliver  bonds  on  that  date. 

5.  A  owns  an  annuity  of  $50  per  annum,  the  first  payment  on 
which  falls  due  one  year  hence,  and  which  continues  for  a  peri- 
od of  twenty  years  certain.  State 

(a)  The  present  value  of  the  benefit 

(b)  The  amount  which  he  will  have  accumulated  at  the  end  of 
the  period  if  he  invests  each  moiety  as  it  becomes  due. 

Assume  interest  at  4%  payable  annually.     In  this  connection  the  value 
of  (1.04)  is  stated  to  be  equal  to  2.191123. 


PRACTICAL  ACCOUNTING 


Friday,  May  17,  1918,  from  9:00  A.  M.  to  I  :oo  P.  M. 


The  candidate  is  required  to  answer  questions  I  and  2 
and  four  other  questions. 


i.  BALANCE  SHEET 

December  31,  1916 

ASSETS 

Cash    $3,000.00 

Accounts  Receivable 15,700.00    $  18,700.00 


MICHIGAN  C.  P.  A.  MANUAL  223 

Inventories : 

Finished    goods    145,500.00 

Goods  in  process .....       8,350.00 

Materials     55,000.00      217,850.00 


$236,550.00 

Land    40,000.00 

Buildings     $94,000.00 

Less  reserve  for  depreciation "      14,000.00    80,000.00 


Machinery  and  fixtures   81,000.00 

Less  reserve  for  depreciation   21,000.00    60,000.00      180,000.00 

Deferred  charges : 

Insurance  and  taxes 1,100.00 


Total  assets    417,650.00 

Deficit 52,850.00 


$470,500.00 
LIABILITIES 

Notes    Payable    -. $275,000.00 

Accounts    Payable    15,500.00    $290,500.00 


Capital  Stock: 

Preferred 100,000.00 

Common    80,000.00      180,000.00 


$470,500.00 

The  foregoing  was  the  balance  sheet  of  a  corporation,  Decem- 
ber 31,  1916,  incorporated  January  i,  1910,  and  during  the  en- 
suing year  there  occurred  the  following  transactions : 

Sales,  net   .  .„ $550,000.00 

Purchases,  net— raw  material   347,000.00 

Raw  material  inventory  increased  64,000.00 

Labor    60,000.00 

Total  manufacturing  expense   35,900.00 

Process  inventory  increased 20,000.00 

Finished  goods  inventory  increased 36,000.00 

Total  selling  expense 35,000.00 

Total  administrative  expense  26,000.00 

Notes  payable  have  been  renewed  as  they  became  due,  except 
that  $100,000.00,  held  by  the  largest  owners  in  the  company, 
has  been. donated  to  the  company,  July  I,  1917;  $5,000.00  of 
3^2%  Liberty  bonds  have  been  bought;  $2,000.00  has  been  do- 
nated to  the  Red  Cross. 


224  MICHIGAN  C.  P.  A.  MANUAL 

NOTES  : 

Depreciation  on  buildings,  estimated  life  47  years,  beginning 
January  I,  1910. 

Depreciation  on  machinery,  estimated  life  27  years,  beginning 
January  I,  1910. 

Accounts  receivable  were  $45,000.00,  and  accounts  payable  $15,- 
ooo.oo  at  the  close  of  the  year. 

There  was  accrued  interest  payable  $2,500.00,  December  31, 
1917. 

Prepare  an  operating  and  profit  and  loss  statement  for  the  year 
and  a  balance  sheet  as  on  December  31,  1917;  and  calculate 
taxes  to  be  paid  to  the  United  States  government. 
The  pre-war  profits  were  respectively  $14,000.00,  $8,250.00  and 
$5,500.00,  for  the  years  1911,  1912  and  1913;  and  the  invested 
capital  for  the  corresponding  years  $160,000.00,  $160,000.00. and 
$140,000.00. 

2.  During  the  year  ended  December  31,  1917,  the  A.  B.  C.  Cotton 
Mills  produced  3,893,000  pounds  of  finished  product.     There 
were  turned  into  the  mill  during  the  year  4,250,000  pounds  of 
cotton,  costing  $750,000.00,  and  175,000  pounds  of  yarn,  cost- 
ing $60,000.00.     The  stock  in  process  at  the  beginning  of  the 
year  amounted  to  150,000  pounds  valued  at  $20,000.00,  and  at 
the  end  of  the  year  to  200,000  pounds,  valued  at  $60,000.00. 
Waste  produced  during  the  year  was  420,000  pounds  and  real- 
ized $26,000.00.    The  factory  expenses  were :  Superintendence, 
$5,000.00;  labor,  $160,000,00;  fuel,  $20,000.00;  oil,  $1,500.00; 
mill  supplies,  $12,500.00;  burlap,  $4,500.00,  and  starch  and  siz- 
ing, $7,500.00.     For  its  finished  product  sold  the  company  real- 
ized $1,250,000.00.     On  the  first  of  the  year  the  value  of  the 
finished  product  on  hand  amounted  to  $26,000.00,  and  at  the 
end  of  the  year  to  $78,000.00.     The  selling  expenses  of  the 
company  amounted  to  $80,000.00,  its  general  expenses  to  $22,- 
500.00,  and  its  extraordinary  expenses  not  applicable  to  the  cost 
of  production  to  $50,000.00. 

Prepare  a  comprehensive  income  account  covering  the  year's 
operations  and  give  statistics  as  to  the  sales  and  cost  of  produc- 
tion per  pound  by  items  with  the  invisible  gain  or  loss  during 
the  year  on  cotton  passing  through  the  mill. 

3.  With  what  accounts  of  a  bankrupt  company  would  you  open 
the  books  of  the  receiver?    State  vour  reasons  for  so  doine 

o 

4.  Mention  three  classes  of  transactions  which  a  debit  item  may 
represent  in  a  personal  account. 


MICHIGAN  C.  P.  A.  MANUAL  225 

5.  You  are  asked  by  a  client  to  discuss  with  him  the  question  of 
reserves  for  depreciation  and  depletion  of  his  various  capital 
assets.     State  your  position  on  this  subject  and  enumerate  the 
considerations  you  would  advance  in  support  thereof.     Would 
you  or  would  you  not  be  guided  by  the  rules  laid  down  by  the 
internal  revenue  authorities  in  deciding  upon  the  rates  to  be 
used  ? 

6.  Explain  what  is  understood  by  a  "book  inventory"  and  indicate 
in  what  circumstances  and  for  what  purposes  you  would  con- 
sider such  a  record  to  be  of  use  in  a  manufacturing  business : 

(a)  For  current  information 

(b)  For  use  in  the  preparation  of  interim  statements  of  accounts 

(c)  For  use  in  the  preparation  of  final  yearly  or  half-yearly  ac- 

counts. 

Assuming  your  client  decided  to  rely  entirely  upon  such  book 
records,  what  steps  should  be  taken  to  guard  their  accuracy? 

7.  What  particular  features  is  it  necessary  to  bring  out  in  the 
preparation  of  the  annual  accounts  of  a  municipal  or  county 
government  ? 

8.  You  are  called  upon  to  advise  a  client  who  has  large  dealings, 
both  buying  and  selling,  with  foreign  countries,  involving  ques- 
tions of  foreign  moneys  and  exchange.     What  general  princi- 
ples would  guide  you  in  advising  him  ? 

9.  How  should  a  re-appraisal  of  capital  assets  be  treated  on  the 
books  of  a  going  concern : 

(a)  When  it  involves  an  appreciation 

(b)  When  it  involves  a  depreciation? 

Is  such  appreciation  or  depreciation  a  consideration  which 
should  be  reflected  in  a  return  of  net  income  to  the. federal  au- 
thorities for  income  and  excess  profits  tax  purposes? 


PRACTICAL  ACCOUNTING 


Tuesday,  November  19,  1918,  from  9:00  A.  M.  to  I  :oo  P.  M. 


i.  The  following  items  appear  on  the  balance  sheet  of  the  Ameri- 
can Pin  Company,  June  30,  1912:  Land,  buildings,  equipment, 
etc.,  $335,000;  capital  stock  of  the  Bronx  Pin  Ticket  Company, 
par  $50,000;  cost,  $57,400;  patents,  $15,000;  working  and  trad- 
ing assets,  $37.500;  cash,  $10,000;  accounts  receivable,  $32,000; 


226  MICHIGAN  C.  P.  A.  MANUAL 

due  from  Bronx  Pin  Ticket  Company,  $375.82;  deferred  assets, 
$1,500-;  first  mortgage  6%  gold  bonds  payable,  due  1922,  $100,- 
ooo ;  taxes  accrued,  $3,250;  salaries  and  wages  accrued,  $4,- 
327.82;  accounts  payable,  $123,749.83;  notes  payable  and  inter- 
est, $80,125;  interest  accrued  on  first  mortgage  bonds  payable, 
$2,500;  reserve  for  depreciation  of  building  and  equipment, 
$35,000;  preferred  capital  stock  outstanding,  $75,000;  common 
capital  stock  outstanding,  $50,000;  profit  and  loss  surplus,  $14,- 
823.17. 

The  American  Pin  Company  having  acquired  all  the  capital 
stock  of  the  Bronx  Pin  Ticket  Company,  the  balance  sheet  of 
which  appears  below,  it  is  proposed  to  merge  the  two  com- 
panies as  of  July  i,  1912. 

THE:  BRONX  PIN  TICKET  COMPANY 

Assets — Land,  buildings,  and  equipment,  etc.,  $260,000;  capital 
stock  of  the  Blauser  Pin  Tray  Company  carried  at  par,  $35,000; 
patents,  $22,625;  working  and  trading  assets,  $10,000;  cash, 
$10,365.27;  accounts  receivable,  $37,943.86;  sinking  fund,  $3,- 
236.92;  deferred  charges  to  expense,  $1,200.  Liabilities  and 
capital — First  mortgage  5%  gold  bonds  payable,  due  1925,  $50,- 
ooo ;  taxes  accrued,  $2,750;  salaries  and  wages  accrued,  $3,147,- 
83;  due  to  creditors,  $144,720.30;  due  to  American  Pin  Com- 
pany, $375.82;  notes  payable  and  interest,  $31,372.53;  interest 
accrued  on  first  mortgage  bonds  payable,  $1,250;  reserve  for 
depreciation  of  plant  and  equipment,  $27,500;  common  capital 
stock  outstanding,  $50,000;  profit  and  loss  surplus,  $69,254.57. 
Prepare : 

(a)  The  entries  on  the  books  of  the  American  Pin  Company 

(b)  The  entries  on  the  books  of  the  Bronx  Pin  Ticket  Company 

(c)  Balance  Sheet  of  the  American  Pin  Company  after  the  merger. 

2.  The  following  problem  is  based  upon  the  estimate  cost  system. 
No  factory  ledger  will  be  used,  all  accounts  being  kept  on  the 
general  ledger.  The  business  is  the  making  of  men's  clothes, 
and  two  principal  materials  will  be  used,  fine  woolens  and  plain 
woolens,  on  which  stock  records  will  be  kept.  Stock  records  will 
also  be  kept  for  finished  goods, 
(a)  The  following  styles  of  clothing  will  be  made,  and  they  are 

estimated  to  cost: 

Style  Style  Style 

801  802  803 

Materials  used  $12.50  $  8.00  $  4.00 

Supplies  (linings,  buttons,  etc.) 3.00  2.50  2.00 


MICHIGAN  C.  P.  A.  MANUAL  227 

Labor    9.00  6.00  4.50 

Factory  expenses,  60% 5.40  3.60  2.70 


$29.90        $20.10        $13.20 

Note  that  the  estimated  costs  are  subdivided  into  four  sec- 
tions and  that  the  accounts  must  be  kept  to  record  the  cor- 
ersponding  subdivisions  of  operating  costs. 

(b)  The  company  starts  with  the  following: 

Dr.  Cr. 

Machinery  and  equipment $10,000.00 

Cash     40,000.00 

Capital   Stock    $50,000.00 

(c)  The  purchases  for  the  first  month  according  to  voucher 
record  are : 

Materials,  fine  woolens,  2,000  yds.,  at  $3.00 $  6,000.00 

Materials,  plain  woolens,  3,000  yds.,  at  $1.50 4,500.00 

Rent  of   factory    500.00 

Lining,  buttons  and  thread,  etc 3,400.00 

Salesmen's  commissions  paid    700.00 

Office  expenses   120.00 

Repairs  to  machines  and  equipment 350.00 

Electric  power    440.00 

Oil  waste  and  other  factory  supplies 225.00 


$16,235.00 
(d)   The  payrolls  are  summarized  as  follows: 

Foreman  and  timekeepers  $  250.00 

Tailors,  cutters,  etc.  (direct  labor) 4,600.00 

Office  and  salesmen's  salaries   750.00 

Inspectors  and  other  indirect  factory  wages 435-OO 


$6,035-00 

(e)  Depreciation  on  equipment  is  calculated  at  i%  per  month. 

(f )  The  cutting  room  foreman  reports  having  taken  from  stock 
and  cut  the   following  materials   for  use  on  garments  in 
progress : 

1,400  yds.  fine  woolens  2,200  yds.  plain  woolens 

(g)  The  tailoring  foreman  reports  the  following  garments  fin- 
ished and  placed  in  stock : 

Style  No.  801 200  pieces 

"    802 300      " 

1    803 200      " 

(h)   The  sales  record  is  as  follows: 

Invoice  No.  I     Style  No.  801     100  pieces $4,000.00 

'    803     100  2,000.00 

'2        "        "    801      50      "      2,050.00 


228  MICHIGAN  C.  P.  A.  MANUAL 


3  '  802  100     3,000.00 

4  '  802  100     2,800.00 

"803   25   "   450.00 


$14,300.00 

Hint :     Make  entry  for  cost  of  sales. 

Received  cash  from  customers,  $9,000.00. 
(k)   Paid  out  cash  for  wages,  $6,035.00,  and  vouchers,  $7,650. 
(1)    Inventories  at  end  of  month.    (In  addition  to  stocks  of  raw 

materials  and  finished  goods  as  shown  by  stock  records.) 

.  Supplies,  $1,000.00. 
Unfinished  goods : 

Style  No.  801,  50  pieces. 

All  material  cut. 

All  'supplies  provided. 

Labor  half  completed. 
Style  No.  802,  100  pieces. 

All  material  cut. 

Half  of  supplies  provided. 

Half  of  labor  finished. 

(m)  Prepare  balance  sheet  and  profit  and  loss  account  for  the 
month.     Add  or  deduct   from  cost  of  sales,  when  preparing 
profit  and  loss  account,  the  unabsorbed  labor,  expenses,  etc. 
(n)    Show  how  balances  of  raw  material  and  finished  goods  are 
made  up. 

3.  A  dealer  in  foreign  exchange  finds  from  his  books  that  he  has 
had  the  following  transactions  in  London  exchange  during  a 
particular  month,  viz. : 

Exchange  bought  in  local  market : 

Jan.     i     3O-day  bill,  payable  in  London  £300  at  4.75 

Jan.  15     Bill  due  at  sight  in  London  £2,300  at  4.76 
Exchange  sold  in  local  market : 

Jan.     5     Bill  due  in  London  at  sight  £1,000  at  4.77 

Jan.  20    Cable  transfer  £2,000  at  4.78 
Foreign  correspondents'  draft  honored  and  paid: 

Jan.  20    Bill  at  30  days  after  sight  accepted  Dec.  21 
£500  at  4.78 

State  how  the  balance  on  the  account  stands  at  the  close  of  the 
month,  and  how  much  profit  or  loss  has  been  derived  from  the 
transactions.  (At  January  31  the  rate  for  cable  transfers  is 
4.80.)  Is  the  profit  or  loss  so  stated  final? 

4.  A  distinction  is  made  between  funded  debt  and  unfunded  debt. 
Please  define  and  compare,  discussing  the  advantages  and  dis- 
advantages, if  any,  attaching  to  each. 


MICHIGAN  C.  P.  A.  MANUAL  229 

PRACTICAL  ACCOUNTING 


Monday,  June  9,  1919,  from  i  :oo  P.  M.  to  5  :oo  P.  M. 


The  candidate  is  required  to  answer  questions  I  and  2 

and  one  of  the  last  three, 
i.    (40  Credits) 

The  Cudmore  Manufacturing  Company  owns  and  operates  two 
plants  with  main  factory  at  Detroit  and  the  other  at  Jackson. 
These  plants  are  operated  as  distinct  units  and  a  complete  set 
of  accounts  is  maintained  at  each  office.  The  accounts  are 
closed  annually  on  December  31. 

From  the  two  trial  balances  as  of  December  31,  1918,  which  are 
given  below,  prepare  two  exhibits,  viz. :  Balance  Sheets  as  of 
December  31,  1918  and  Manufacturing,  Trading  and  Profit  and 
Loss  Statements  for  the  year  ended  December  31,  1918,  to  show 
the  separate  and  combined  results. 

The  invoices  shown  in  the  interplant  accounts  represent  ma- 
terial sold  by  the  Detroit  plant  to  the  Jackson  plant  at  cost, 
plus  5%  profit. 

The  inventories  at  the  end  of  the  year  are  as  follows : 

Detroit  Jackson 

Material    $47,500.00  $35,700.00 

Supplies    830.00  270.00 

Prepaid  Expenses : 

Insurance    300.00  230.00 

Taxes   680.00  340.00 

Tn  your  answer,  combine  such  figures  of  the  trial  balance  as 
may  be  properly  grouped  in  control. 

Detroit  Plant  Jackson  Plant 

Dr.                 Cr.  Dr.                 Cr. 

Petty    Cash    $        150.00  $        150.00 

Cash  in  Bank 49,000.00  20,000.00 

Accounts  Receivable   38,000.00  24,000.00 

Material  Inventory  Jan.  i,  '18    48,000.00  35,000.00 

Supplies  Inventory  Jan.  i,  '18         500.00  300.00 

Plant  Buildings  52,000  co  41,000.00 

Plant   Equipment    1 1,000.00  8,coo.oo 

Plant    Betterment    3,000.00  4,000.00 

Real   Estate    7,000.00  5,000.00 

Furniture    and    Fixtures 2,000.00  1,000.00 

Machinery     35,000.00  26,500.00 

Tools    8,000.00  .     0,500.00 

Patterns    9,000.00  7,500.00 


230 


MICHIGAN  C.  P.  A.  MANUAL 


Accounts   Payable    $  10,000.00                           $  25,000.00 

Notes    Payable    8,000.00                                 6,000.00 

Accrued  Wages    i.ooo.oo                                   800.00 

Miscellaneous    Revenue 1,500.00                                   300.00 

Reserve  for  Bad  Debts 450.00                                   100.00 

Reserves  for  Depreciation: 

Plant    18,900.00                              13,000.00 

Equipment    3,500.00                                 2,000.00 

Furniture    and    Fixtures.  1,000.00                                    300.00 

Machinery     10,000.00                                 8,500.00 

Tools     5,400.00                                5,000.00 

Materials    Purchases    129,300.00                               00,000.00 

Direct    Labor    44,000.00                               28,000.00 

Misc.  Factory  Expenses    ....  15,000.00                              10,000.00 

Misc.  Factory  Labor    4,500.00                                 2,000.00 

Power,   Light  and   Heat 3,900.00                                3,000.00 

Power,  Light  &  Heat  Labor.  1,200.00                                 1,000.00 

Boiler  and  Engine  Repairs..  500.00                                    300.00 

Factory    Supplies    Purchased  2,400.00                                 1,800.00 

Compensation    for    Injuries..  650.00                                    400.00 

Medical  Expense   300.00                                   100.00 

Cartage  in    1,200.00                                1,000.00 

Freight  and   Express   in 1,500.00                                 1,000.00 

Sales    239,600.00                            181,550.00 

Executive    Salaries    3,600.00                                3,600.00 

Office  Salaries  4,700.00                                 2,000.00 

Stationery  and   Printing 1,500.00                                  750.00 

Insurance    1,000.00                                   700.00 

Taxes    1,200.00                                1,000.00 

General    Expense     500.00                                   500.00 

Telephone   and    Telegraph . . .  400.00                                  300.00 

Interest    300.00                                  200.00 

Discount    1,200.00                                   700.00 

Traveling  Exp.,  Executives . .  200.00                                   200.00 

Postage    900.00                                   250.00 

Advertising    2,300.00                                   500.00 

Salesmen's  Salaries  and  Exp.  4,200.00                                3,200.00 

Packing    and    Shipping 6,200.00                                 4,300.00 

Freight  and   Express   Out...  800.00                                  600.00 

Cartage   Out    1,800.00                                   200.00 

Capital   Stock    100,000.00 

Jackson  Plant   110,000.00 

Jackson  Suspense  Account...  4,200.00 

Surplus  &  Undivided   Profits  212,750.00 

Detroit  Plant  7,100.00 

Capital  Account 104,100.00 

$6i2,ioo.co    $612,100.00    $346,650.00    $346,650.00 

"JACKSON  PLANT  ACCOUNT" 

ON  DETROIT  BOOKS 

1918  Dr.                Cr. 

Jan.      i     Balance    $100,000.00 

Dec.  29     Cash  for  additional  capital 10,000.00 

Dec.  31     Balance $i  10,000.00 


$110,000.00  $110,000.00 


MICHIGAN  C.  P.  A.  MANUAL 


231 


1918 

Mar.  21  Cash     

Apr.  15  Invoice    

May  3  Invoice    

May  12  Invoice    , 

May  17  Cash    

June  10  Invoice    , 

June  15  Invoice   

July  i  Cash    

Oct.  i  Cash    

Oct.  i  Invoice    

Oct.  12  Invoice    

Oct.  15  Invoice    

Oct.  31  To  Suspense  Account 

Nov.  i  Invoice    

Dec.  i  Invoice     , 

Dec.  10  Invoice    

Dec.  1 1  Invoice    

Dec.  ii  Cash     

Dec.  29  Invoice    

Dec.  31  Invoice    

Dec.  31  Cash    


"JACKSON  CURRENT  ACCOUNT" 
ON  DETROIT  BOOKS 


Dr. 

300.00 

500.00 

1,000.00 

1,200.00 
600.00 


6OO.OO 

25O.OO 

IjOOO.OO 

6OO.OO 

4OO.OO 

2,000.00 

1,000.00 

2,46o.OO 

3,000.00 
1,740.00 


Cr. 
2,500.00 


2,500.00 


2,500.00 
3,800.00 


4,200.00 


1,150.00 


$  16,650.00   $  16,650.00 


"DETROIT  PLANT  ACCOUNT" 


ON  JACKSON  BOOKS 

1918  Dr.               Cr. 

Mar.  18     Cash $  2,500.00 

Apr.    15     Invoice    $       30O.OO 

May     3     Invoice    500.00 

May    12     Invoice I,ooo.oo 

May    15     Cash    2,500.00 

June  10     Invoice    1,200.00 

June  15     Invoice    600.00 

June  30    Cash     2,500.00 

Sept.  30     Cash    3,800.00 

Oct.      i     Invoice 600.00 

Dec.    31     Balance  Forward    7,100.00 

$  11,300.00    $  11,300.00 
"CAPITAL  ACCOUNT" 

ON  JACKSON  BOOKS 

1918  Dr.                Cr. 

Jan.      i     Balance    $100,000.00 

Oct.    12    Invoice    250.00 

Oct.    15     Invoice    1,000.00 

Nov.     i     Invoice    600.00 

Dec.      i     Invoice    400.00 

Dec.    10     Invoice    2,000.00 

Dec.    1 1     Invoice    1,000.00 

Dec.    ii     Cash    $  1,150.00 

Dec.    31     Balance  Forward    104,100.00 

}  -L.  ;  „•  

$105,250.00  $105,250.00 


232  MICHIGAN  C.  P.  A.  MANUAL 

2.  (30  Credits) 

'The  following  Trial  Balance  of  the  Crystal  Lak^  Development 
Company  as  of  April  30,  1919  is  furnished  from  which  with 
added  information  you  are  requested  to  prepare  a  Financial 
Statement  and  Profit  and  Loss  Account. 

Cash  on  hand  and  in  Banks $     1,000.00 

Liberty    Bonds    5,000.00 

Contracts  Receivable  48,000.00 

Land — 100  Acres    175,000.00 

Improvements    25,000.00 

Int.  on  Mortgage  and  Notes  Payable      6,900.00 
Exp.  Organization  and  Development..     13,100.00 

Expenses  Operating 13,500.00 

Equipment  Trench  Digger   2,500.00 

Commissions  Payable   $    5,000.00 

Sale  of  Buildings 3,000.00 

Sale  of  Lots 60,000.00 

Notes  Payable 10,000.00 

Mortgages   Payable   105,000.00 

Capital  Stock  100,000.00 

Income  Rent   2,000.00 

Income  Interest    4,000.00 

Income  Miscellaneous  1,000.00 

The  company  was  organized  May  I,  1918,  to  purchase  acreage, 
subdivide  same  and  sell  through  agents  in  lots  on  land  con- 
tracts. One  farm  of  50  acres  was  purchased  for  $100,000.00, 
another  of  equal  size  for  $75,000.00.  The  former  was  improved 
and  subdivided  into  400  lots  on  which  selling  prices  were  fixed 
and  lots  sold  during  April  as  follows,  no  sales  having  been  made 
previously. 

Subdivided  Selling  Price     Lots  Sold 

100  Lots    $  600.00  26 

100  Lots    800.00  15 

100  Lots    1,000.00  18 

100  Lots    1,000.00  12 

Down  payments  on  land  contracts  had  been  $12,000.00  of  which 
$4,000.00  was  retained  by  the  selling  agents  to  apply  on  their 
commissions. 

Treatment  of  development  costs  and  carrying  charges  option- 
al with  candidate. 

3.  (30  Credits) 

(a)  Assuming  that  the  Balance  Sheets  given  below  are  dated 
January i,  1917,  and  December  31,  1917  respectively,  pre- 
pare a  statement  showing  the  computation  of  'the  invested 
capital  for  the  calendar  year  ended  December  31,  1917  as 
defined  in  the  Federal  Revenue  Act  of  1917  (Income  and 
Excess  Profits  Tax  Law)  and  the  regulations  relative  to  this 
act,  for  the  purpose  of  determining  the  excess  profits  tax. 


MICHIGAN  C.  P.  A.  MANUAL 


233 


(b)  Assuming  that  the  Balance  Sheets  are  dated  January   i, 
1918  and  December  31,  1918  respectively,  prepare  a  state- 
ment showing  the  computation  of  the  invested  capital  for 
the  calendar  year  ended  December  31,  1918  as  defined  in  the 
Federal  Revenue  Act  of  1918  (Income,  Excess  Profits  and 
War  Profits  Tax  Law)  and  the  regulations  relative  to  this 
act,  for  the  purpose  of  determining  the  excess  profits  taxes. 

(c)  Prepare  a  statement  showing  the  calculation  of  the  Income 
Excess  Profits  and  War  Profits  Taxes  for  the  Calendar 
year  ended  December  31,  1918,  ascsuming  that  the  corpora- 
tion was  organized  and  incorporated  in  1915. 

BALANCE  SHEETS 

ASSETS                                         January  i  December  31 

Cash    $  22,842.69  $      24,262.91 

Accounts  Receivable  Trade 112,943.81  146,276.94 

Inventories  of  Raw  Material,  Work  in  Progress, 

Finished  Goods  and  Supplies 268,021.93  296,263.82 

Liberty  Bonds   50,000.00 

Stocks  and  Bonds 60,000.00  60,000.00 

Plant  Machinery  and  Equipment 350,000.00  350,000.00 

Prepaid  Expenses 400.00  500.00 

Good-Will  (paid  for  in  stock)    100,000.00  100,000.00 

$914,208.43  $  1,027,303.67 
LIABILITIES  AND  CAPITAL 

Vouchers   Payable    $  32,942.61  $      62,821.96 

Reserve  for  Taxes  and  Contingencies  30,000.00  30,000.00 

Capital  Stock,  Issued  January  i,  1916: 

Preferred    100,000.00  100,000.00 

Common    200,000.00  200,000.00 

Surplus  and  Undivided  Profits  551,265.82  634,481.71 

$914,208.43    $  1,027,303.67 
ANALYSIS  OP  SURPLUS  AND  UNDIVIDED  PROFITS  FOR  THE  YEAR 

Balance,  January  i  $551,265.82 

Dividends  paid  as  follows  : 

Preferred,  paid  monthly  on  last  day  of  each  month .  $6,000.00 
Common : 

January  31    2,000.00 

February  28   2,000.00 

March  31    2,000.00 

June  30   6,000.00 

September  30 6,000.00 

December  20  (Christmas  dividend) 3,000.00 

December  31 6,000.00 

33,000.00 

$518,265.82 
Net  Profits  for  the  year 128,477.87 

$646,743.69 
Income  (and  Excess  Profits)  tax  paid  during  year 12,261.98 

Balance,  December  31    $634,481.71 


234  MICHIGAN  C.  P.  A.  MANUAL 

ANALYSIS  OF  STOCKS  AND  BONDS 

(AU,  ENTERED  AT  PAR,  WHICH  IS  AIvSO  THE  PURCHASE  PRICE) 
200  shares  of  the  Capital  Stock  of  the  Fan  Manufacturing  Co., 

Flint,  Mich $20,000.00 

Bonds  of  the  City  of  Anderson,  Minnesota,  5% 10,000.00 

Bonds  of  the  Allegan  and  Huron  Railroad,  6% 30,000.00 


$60,000.00 
LIBERTY  BONDS 
For  Question  I : 

Second  Loan   $50,000.00 

For  Question  2 : 

Third  Loan    $25,000.00 

Fourth  Loan 25,000.00 

In  answering  Question  No.  3  it  may  be  assumed  that  no  unal- 
lowable deductions  have  been  entered  in  the  Profit  and  Loss 
account  on  the  books.  Non-taxable  income  should  be  figured 
from  the  data  above.  The  Third  Liberty  Loan  paid  one  coupon 
in  1918  in  the  amount  of  $14.90  per  M.  No  dividends  were 
received  from  the  Fan  Manufacturing  Co.  during  1918. 

4.  (30  Credits) 

The  Buzzer  Automobile  Company  manufactures  an  assembled 
car.  Following  is  a  synopsis  of  its  factory  activities  for  a  given 
period.  Build  up  from  the  figures  shown  all  of  the  relative  ac- 
counts as  they  would  appear  on  the  Factory  Ledger  with  sum- 
mary of  Stores  Ledger  at  closing. 
Purchases  including  opening  inventory : 

Parts  Purchased  $  65,000.00 

Parts  Manufactured  (material)    225,000.00 

Productive  Labor 281,250.00 

Factory  Expense    451,200.00 

Cost  of  Finished  Cars : 

Parts  Purchased   55,000.00 

Parts  Manufactured  (material)    75,000.00 

Productive  Labor  188,500.00 

Factory  Overhead  Expense 226,200.00 

Material  on  hand  (In  Process)  $200,000.00. 

5.  (30  Credits) 

A  contractor  proposes  to  build  a  bridge  to  Belle  Isle  and  accept 
the  city's  4%  2O-year  bonds  to  the  amount  of  $2,000,000  in 
payment.  He  advocates  as  a  means  of  retiring  the  bonds  the 
establishment  of  a  toll  system  on  foot  passengers  and  automo- 
biles at  the  respective  rates  of  I  and  5  cents  each.  Assuming 
the  ratio  of  foot  passengers  to  automobiles  to  be  ten  to  one, 
how  many  of  each  would  be  necessary  to  pay  the  interest  an- 
nualy  and  create  a  fund  which  placed  at  the  same  rate  of  inter- 
est would  be  sufficient  to  retire  the  bonds  at  maturity? 
NOTE:  $i  compounded  at  4%  for  20  years  =  $2. 191 123 14. 


ECONOMICS  AND  PUBLIC 
FINANCE 


236  MICHIGAN  C.  P.  A.  MANUAL 

ECONOMICS  AND  PUBLIC  FINANCE 


Saturday,  November  17,  1917,  from  9:00  A.  M.  to  12:00  M. 


1.  Explain  the  different  methods  by  which  governments  secure 
the  revenue  needed  for  carrying  on  business — local,  state,  and 
national. 

2.  Indicate  the  points  that  should  be  studied  in  preparing  any 
profit  sharing  scheme. 

3.  Name  the  different  kinds  of  organizations  handling  trust  funds, 
with  the  restrictions  that  are  or  should  be  placed  upon  them, 
indicating  the  services  which  they  render  to  the  community. 

4.  Define  credit,  wealth,  money,  legal  tender,  circulation    (bank 
use). 

5.  What  economic  arguments  may  be  raised  for  or  against  the 
transaction  of  business  by  corporations  ? 


ECONOMICS  AND  PUBLIC  FINANCE 


Tuesday,  June  10,  1919,  from  TI  :oo  A.  M.  to  12:00  M. 


1.  Explain  the  present  tax  laws  of  the  United  States  Government 
and  indicate  which  of  the  taxes  can  be  shifted. 

2.  What  effect  does  the  invention  of  machinery  have  on  the  rate 
of  interest? 


ECONOMICS  AND  PUBLIC  FINANCE 


Tuesday,  June  10,  1919,  from  4:00  P.  M.  to  5  :oo  P.  M. 


1.  Present  the  arguments  for  a  national  budget. 

2.  In  view  of  the  present  tax  laws  is  it  of  advantage  or  not  to  the 
individual  stock-holder  if  corporations  are  under  or  over  capi- 
talized ? 


SYNOPSIS  OF  C.  P.  A.  LAWS 


MICHIGAN  C.  P.  A.  MANUAL  239 


SYNOPSIS  OF  C.  P.  A.  LAWS 

A  careful  study  of  the  various  state  laws  shows  that  the  average 
certified  public  accountant  in  the  several  states  where  laws  have 
been  passed  is  a  citizen  of  the  United  States,  twenty-one  years  of 
age,  who  has  had  the  equivalent  of  a  high-school  education,  has 
practiced  as  a  public  accountant  for  at  least  two  years,  has  satisfied 
a  state  board  as  to  his  character  and  ability,  and  has  received  from 
the  proper  authorities  a  certificate  permitting  him  to  practice  as  a 
certified  public  accountant. 

The  following  synopsis  presents  at  a  glance  the  conditions  sur- 
rounding the  certified  public  accountant  in  the  several  states  where 
laws  have  been  enacted,  the  states  being  arranged  in  the  order  in 
which  the  laws  were  secured.  If  the  requirement  is  fixed  by  statute, 
that  fact  is  shown  by  (S).  If -it  is  a  rule  of  the  administrative 
board,  it  is  shown  by  (R).  Comparisons  are  made  along  four  dis- 
tinct lines:  (i)  preliminary  education;  (2)  professional  training; 
(3)  licensing  test ;  (4)  reciprocity. 

Most  of  the  laws  provide  for  a  State  Board  of  Accountancy  of 
three  or  five  members,  appointed  by  the  Governor  or  the  governing 
board  of  the  State  University.  Most  of  the  laws  provide  that  one 
member  shall  be  a  practicing  attorney  in  good  standing  in  any  of  the 
courts  of  the  state.  Iowa  and  South  Dakota  require  holders  of 
certificates  to  furnish  bonds.  All  states  require  citizenship  or  dec- 
laration of  intention  except  Florida,  Maine,  Michigan,  North  Da- 
kota and  South  Carolina.  The  South  Dakota  law  provides  for  a 
board  consisting  of  the  public  examiner,  the  executive  accountant 
and  the  insurance  examiner.  The  Oklahoma  law  provides  for  a 
board  of  the  state  examiner  and  inspector,  the  attorney  general  and 
one  accountant.  Massachusetts  and  New  Hampshire  place  the  work 
in  the  hands  of  the  bank  commissioners.  Verment  specifies  that  its 
members  shall  be  the  state  auditor  of  accounts,  the  bank  commission- 
er, and  a  third  person.  In  North  Dakota,  the  membership  is  com- 
posed of  an  educator,  an  attorney  and  an  accountant.  Idaho  vests 
the  power  in  the  department  of  law  enforcement.  The  Indiana  law 
makes  the  board  to  consist  of  the  state  examiner  and  two  deputy 
examiners  of  the  state  board  of  inspection  and  supervision  of  public 
officers.  In  most  of  the  states  it  is  provided  that  a  majority  of  the 
State  Board  of  Accountancy  shall  be  practicing  public  accountants 
and  after  the  first  selection  shall  be  chosen  from  the  holders  of 
C.  P.  A.  certificates. 


24o  MICHIGAN  C.  P.  A.  MANUAL 

It  will  be  noticed  that  only  two  states  are  lacking  C.  P.  A.  laws: 
Mississippi,  and  New  Mexico. 

NEW  YORK,  1896.  (i)  (R)  Regents  academic  diploma  re- 
quired or  the  qualifying  certificate;  (2)  (R)  five  years'  satisfactory- 
experience  in  accounting  at  least  two  of  which  must  be  in  the  em- 
ploy of  a  certified  public  accountant;  (3)  (R)  examination  on  four 
subjects,  covering  15  hours;  (4)  (S)  permitted  at  the  discretion  of 
the  Regents  of  the  University  if  applicant  has  had  three  years'  ex- 
perience as  public  accountant  in  another  state  having  an  equal  stand- 
ard. 

PENNSYLVANIA,  1899.  (i)  (R)  Recognized  high  school  ed- 
ucation required  or  its  equivalent;  (2)  (R)  statement  from  prac- 
ticing C.  P.  A.  that  applicant  has  had  two  years'  accounting  work 
and  study  in  his  office,  or  three  years'  experience  as  an  independent 
public  accountant;  (3)  (S)  examination  on  two  subjects,  (R)  cov- 
ering 32  hours ;  preliminary  examination  follows  two  years'  regis- 
tration, final  examination  follows  third  year;  (4)  (S)  permitted  to 
accountants-  with  five  years'  experience. 

MARYLAND,  1900.  (i)  (S)  High  school  education  or  its 
equivalent;  (2)  (S)  graduate  from  school  of  accountancy  with  two 
year  course,  or  one  year  in  employ  of  C.  P.  A.  or  two  years'  inde- 
pendent practice  as  public  accountant;  (3)  (S)  examination  on  five 
subjects,  (R)  covering  15  hours;  (4)  (S)  certificate  of  registra- 
tion permitted  and  for  chartered  accountant  as  well. 

CALIFORNIA,  1901.  (i)  (R)  Graduate  accredited  high  school 
or  equivalent;  (2)  (R)  three  years'  accounting  experience,  two  of 
which  were  in  office  of  C.  P.  A.;  (3)  (S)  examination  on  four  sub- 
jects, (R)  covering  18  hours,  (S)  annual  renewal  of  certificate  re- 
quired; (4)  (S)  permitted  and  for  chartered  accountant  as  well. 

WASHINGTON,  1903.  (i)  (R)  High  school  education  or  its 
equivalent;  (2)  (S)  none;  (3)  (S)  examination  on  four  subjects, 
(R)  covering  18  hours,  (S)  annual  renewal  of  certificate  required; 
(4)  (S)  no  provision. 

ILLINOIS,  1903.  (i)  (S)  Four-year  high  school  course  or  its 
equivalent;  (2)  (S)  none;  (3)  (S)  examination  on  four  subjects, 
(R)  covering  15  hours;  (4)  (S)  permitted  to  accountants  with  five 
years'  experience  in  another  state  prior  to  May  15,  1903,  provided 
they  had  passed  an  examination  equivalent  to  that  given  in  Illinois. 

NEW  JERSEY,  1904.  (i)  (R)  High  school  or  equivalent  ed- 
ucation required;  (2)  (R)  two  years'  service  in  the  office  of  a  prac- 
ticing public  accountant  or  on  his  own  account;  (3)  (R)  examina- 
tion on  four  subjects,  covering  24  hours;  (4)  (S)  permitted. 


MICHIGAN  C.  P.  A.  MANUAL  241 

MICHIGAN,  1905.  (i)  (S)  A  high  school  course  or  its  equiv- 
alent required;  (2)  (S)  two  years'  continuous  practical  experience 
in  public  accounting;  (3)  (R)  examination  on  five  subjects,  cover- 
ing 20  hours;  (4)  (S)  certificate  of  registration  permitted  (R)  to 
those  persons  who  received  their  certificates  in  other  states  as  result 
of  examination,  and  (S)  certificate  of  authority  permitted  for  those 
from  other  states  or  foreign  countries. 

FLORIDA,  1905.  (i)  (S)  Four-year  high  school  course  or  its 
equivalent;  (2)  (R)  one  year  in  the  office  of  a  practicing  public 
accountant  or  one  year's  approved  practical  experience;  (3)  (S) 
examination  on  four  subjects,  (R)  covering  20  hours;  (4)  (S)  cer- 
tificate of  registration  permitted. 

RHODE  ISLAND,  1906.  (i)  (S)  None;  (2)  (R)  one  years 
practical  experience;  (3)  (S)  examination  on  four  subjects  and 
such  others  as  the  Board  may  determine,  (R)  covering  12  hours; 
(4)  (S)  certificate  of  registration  permitted  and  for  chartered  ac- 
countant as  well. 

UTAH,  1907.  (i)  (R)  High  school  education;  (2)  (R)  one 
year's  practical  experience;  (3)  (S)  examination  on  four  subjects, 
(R)  covering  8  to  16  hours,  (S)  annual  renewal  of  certificate  re- 
quired; (4)  no  provision. 

COLORADO,  1907.  (i)  (S)  Graduation  from  a  high  school 
or  an  equivalent  education;  (2)  (S)  three  years'  experience  in  the 
practice  of  accounting,  (R)  last  year  must  be  in  Colorado;  (3)  (S) 
examination  on  three  subjects  and  such  other  subjects  as  the  Board 
may  deem  advisable,  (R)  two  subjects  added,  examination  averages 
15  hours;  (4)  (S)  permitted  and  for  chartered  accountant  as  well. 

CONNECTICUT,  1907.  (i)  (S)  Four-year  high  school  course 
or  its  equivalent;  (2)  (S)  two  years'  practical  experience  in  book- 
keeping with  such  training  in  public  accounting  as  the  Board  may 
require,  (R)  two  years  in  office  of  practicing  accountant,  one  year 
of  which  may  be  on  his  own  account;  (3)  (S)  examination  on  four 
subjects  and  such  other  related  subjects  as  the  Board  shall  deem 
necessary,  (R)  covering  21  hours;  (4)  (S)  permitted  to  persons 
with  five  years'  experience  as  a  public  accountant,  one  year  of  which 
was  in  Connecticut. 

OHIO,  1908.  (i)  (S)  Graduation  from  a  high  school  or  an 
equivalent  education ;  (2)  (S)  three  years1  experience  in  account- 
mg;  (3)  (S)  examination  on  four  subjects,  (R)  covering  two  days; 
(4)  (S)  permitted  and  for  chartered  accountant  as  well. 


242  MICHIGAN  C.  P.  A.  MANUAL 

LOUISIANA,  1908.  (i)  (R)  Completion  of  a  high  school 
course  of  study  or  its  equivalent;  (2)  (R)  one  year's  satisfactory. 
practical  experience  or  one  year  in  the  office  of  a  practicing  public 
accountant;  (3)  (S)  examination  on  four  subjects  and  such  other 
branches  of  knowledge  as  the  Board  may  deem  necessary,  (R)  cov- 
ering 14  hours;  (4)  (S)  certificate  of  registration  permitted. 

GEORGIA,  1908.  (i)  (S)  None;  (2)  (S)  none;  (3)  (S)  ex- 
amination on  five  subjects,  (R)  covering  two  days;  (4)  no  pro- 
vision. 

MONTANA,  1909.  (i)  (S)  Graduation  from  an  accredited 
high  school  or  equivalent  education;  (2)  (S)  three  years'  practical 
experience  in  accounting;  (3)  (S)  written  examination  on  four 
subjects  and  such  other  subjects  as  may  be  designated,  and  an  oral 
examination,  (R)  covering  17  hours;  (4)  (S)  permitted  and  for 
chartered  accountant  as  well. 

NEBRASKA,  1909.  (i)  (R)  Graduation  from  four-year  high 
school  or  the  equivalent;  (2)  (R)  three  years  in  the  office  of  a 
practicing  public  accountant  or  in  practice  as  a  public  accountant; 
(3)  (S)  examination  on  subjects  and  questions  furnished  by  the 
National  Association  of  Certified  Public  Accountants,  which  organ- 
ization is  not  now  in  existence ;  (4)  no  provision. 

MINNESOTA,  1909.  (i)  (R)  High  school  course  or  its  equiv- 
alent; (2)  (S)  three  years'  experience  in  accounting,  (R)  the  last 
year  of  which  must  be  in  the  state;  (3)  (S)  examination  on  three 
subjects  and  such  others  as  the  Board  may  deem  advisable,  (R)  cov- 
ering two  days ;  (4)  (S)  permitted. 

MASSACHUSETTS,  1909.  (i)  (R)  Equal  to  a  high  school 
education  or  pass  an  examination;  (2)  (R)  two  years'  practical  ex- 
perience; (3)  (R)  examination  on  four  subjects,  covering  21  hours 
(S)  annual  renewal  of  certificate  required;  (4)  no  provision. 

MISSOURI,  1909.  (i)  (S)  Graduation  from  a  four-year  high 
school  or  the  equivalent,  or  pass  an  examination;  (2)  (S)  three 
years'  experience  in  public  accounting,  (R)  two  of  which  must  be 
in  the  office  of  a  Certified  Public  Accountant;  (3)  (S)  examination 
on  four  subjects,  (R)  covering  155/2  hours;  (4)  (S)  certificate  of 
registration  permitted. 

VIRGINIA,  1910.  (i)  (S)  Equivalent  of  a  high  school  of  rec- 
ognized standing  or  pass  an  examination;  (2)  (S)  one  year's  prac- 
tice as  public  accountant  or  two  years'  assistant  in  the  office  of  a 
public  accountant  or  three  years'  employment  as  bookkeeper;  (3) 
(S)  examination  on  four  subjects,  (R)  covering  two  days;  (4)  (S) 
permitted  and  for  chartered  accountant  as  well. 


MICHIGAN  C.  P.  A.  MANUAL 


243 


WEST  VIRGINIA,  1911.  (i)  (R)  High  school  graduation  or 
its  equivalent;  (2)  (R)  one  year's  practical  experience;  (3)  (S) 
examination  on  six  subjects;  (4)  no  provision. 

\YY(  )MING,  1911.  (i)  (S)  Graduation  from  a  high  school  or 
its  equivalent;  (2)  (S)  three  years'  experience  in  the  practice  of 
accounting;  (3)  (S)  examination  on  three  subjects  and  such  other 
subjects  as  the  Board  may  deem  advisable,  (R)  covering  about  two 
days;  (4)  (S)  permitted  and  for  chartered  accountant  as  well. 

VERMONT,  1912.  (i)  (S)  Graduation  from  a  high  school  or 
its  equivalent;  (2)  (S)  none;  (3)  (S)  examination  on  four  sub- 
jects; (4)  (S)  permitted  to  persons  with  certificate  from  other 
states  who  have  practiced  five  years. 

OREGON,  1913.  (i)  (S)  Discretion  of  the  Board;  (2)  (S) 
discretion  of  the  Board;  (3)  (S)  examination  on  four  subjects,  an- 
nual renewal  of  certificate  required;  (4)  (S)  permitted. 

NORTH  CAROLINA,  1913.  ( i)  (S)  Graduation  from  a  high 
school  or  equivalent  education;  (2)  (S)  three  years'  experience  in 
practical  accounting;  (3)  (S)  examination  on  four  subjects  and  oth- 
er subjects  in  the  discretion  of  the  Board;  (4)  (S)  permitted  and 
for  chartered  accountant  as  well. 

NORTH  DAKOTA,  1913.  (i)  (S)  Prescribed  by  the  State 
University;  (2)  (S)  prescribed  by  the  State  University;  (3)  (S) 
examination  on  five  subjects  and  such  others  as  University  of  North 
Dakota  may  designate,  oral  examination  may  be  required;  (4)  no 
provision. 

NEVADA,  1913.  (i)  (S)  None;  (2)  (S)  none;  (3)  (S)  ex- 
amination on  four  subjects,  annual  renewal  of  certificate  required; 

(4)  (S)  permitted  and  for  chartered  accountant  as  well. 

TENNESSEE,  1913.  (i)  (S)  Equivalent  of  graduation  from 
first-grade  high  school  of  the  state;  (2)  (S)  one  year's  practice  as  a 
public  accountant  or  continuous  employment  as  assistant  for  two 
years  in  the  office  of  a  public  accountant,  or  as  chief  bookkeeper  for 
three  years;  (3)  (S)  examination  on  four  subjects;  (4)  (S)  per- 
mitted and  for  chartered  accountant  as  well. 

DELAWARE,  1913.     (i)    (S)   Discretion  of  the  Board;   (2) 

(5)  three  years'  experience  as  assistant  in  the  office  of  a  public 
accountant  or  on  own  account;  (3)   (S)  examination  on  four  sub- 
jects as  the  Board  may  deem  advisable — general  preliminary  exam- 
ination required  three  years  prior  to  regular;  (4)  (S)  permitted  and 
for  chartered  accountant  as  well. 


244  MICHIGAN  C.  P.  A.  MANUAL 

MAINE,  1913.  (i)  (S)  None;  (2)  (R)  two  years'  practical 
accounting  experience;  (3)  (S)  examination  on  three  subjects  and 
such  others'  as  it  deems  necessary ;  (4)  permitted  and  for  chartered 
accountant  as  well. 

WISCONSIN,  1913.  (i)  (R)  High  school  graduate  or  equiva- 
lent eduaction;  (2)  (R)  two  years'  experience  as  public  accountant; 
(3)  (S)  examination  on  four  subjects  and  other  subjects  deemed 
necessary  by  the  Board;  (4)  (S)  permitted  and  for  chartered  ac- 
countant as  well. 

SOUTH  CAROLINA,  1915.  (i)  (S)  None;  (2)  (S)  discre- 
tion of  Board,  (R)  practiced  public  accounting  in  state  for  three 
years  or  been  employed  for  three  years  in  public  accounting  or  as 
chief  or  head  bookkeeper  in  business  employing  three  accountants ; 
(3)  (S)  examination  on  six  subjects,  annual  renewel  of  certificate 
required;  (4)  no  provision. 

INDIANA,  1915.  (i)  (S)  Graduate  of  a  high  school  or  having 
received  an  equivalent  education;  (2)  (S)  three  years'  experience 
in  the  practice  of  accounting;  (3)  (S)  examination  on  four  sub- 
jects; (4)  (S)  permitted  and  for  chartered  accountant  as  well. 

ARKANSAS,  1915.  (i)  (S)  Graduate  of  four-year  high  school, 
or  have  an  equivalent  education  or  pass  an  examination;  (2)  (S) 
three  years'  practical  accounting  experience;  (3)  (S)  examination 
on  four  subjects;  (4)  (S)  certificate  of  registration  permitted. 

KANSAS,  1915.  (i)  (R)  Graduate  from  four-year  high  school 
or  equivalent;  (2)  (R)  three  years'  experience,  with  one  in  office 
of  public  accountant;  (3)  (S)  discretion  of  Board,  but  qualifications 
are  to  conform  so  far  as  practicable  to  the  standard  approved  by  the 
American  Association  of  Public  Accountants;  (4)  (S)  permitted 
and  for  chartered  accountant  as  well. 

TEXAS,  1915.  (i)  (R)  ^Equivalent  of  high  school  education; 
(2)  (S)  one  year's  study  and  practice  in  accountancy;  (3)  (S)  ex- 
amination on  four  subjects,  annual  renewal  fee  required;  (4)  (S) 
permitted  and  for  chartered  accountant  as  well. 

IOWA,  1915.  (i)  (S)  Graduate  of  four-year  high  school  or 
have  an  equivalent  education  or  pass  a  preliminary  examination ; 
(2)  (S)  three  years'  practical  accounting  experience ;  (3)  (S)  ex- 
amination on  four  subjects;  (4)  (S)  certificate  of  registration  per- 
mitted. 


MICHIGAN  C.  P.  A.  MANUAL  245 

KENTUCKY,  1916.  (i)  (S)  Graduate  of  high  school  with 
four-year  course  or  possessed  of  an  equivalent  education;  (2)  (S) 
three  years'  experience  in  accounting,  one  of  which  has  been  in 
office  of  practicing  accountant  or  individual  practice  as  public  ac- 
countant;  (3)  (S)  written  examination  in  four  subjects;  (4)  (S) 
permitted  and  for  chartered  accountant  as  well. 

SOUTH  DAKOTA,  1917.  (i)  (S)  Graduate  of  high  school 
with  four-year  course,  or  possess  an  equivalent  education  or  pass  an 
examination;  (2)  (S)  three  years'  practical  accounting  experience; 
(3)  (S)  examination  on  four  subjects;  (4)  (S)  certificate  of  regis- 
tration permitted  and  for  chartered  accountant  as  well. 

IDAHO,  1917.  (i)  (S)  High  school  education  or  its  equiva- 
lent; (2)  (S)  three  years  of  practical  experience  in  accounting,  last 
one  in  Idaho;  (3)  (S)  examination  on  four  subjects,  annual  renew- 
al of  certificate  required;  (4)  (S)  permitted. 

OKLAHOMA,  1917.  (i)  (S)  High  school  graduate  or  having 
an  equivalent  education;  (2)  (S)  no  provision;  (3)  (S)  examina- 
tion on  six  subjects;  (4)  (S)  permitted  to  holder  of  C.  P.  A.  cer- 
tificate for  three  years. 

XKW  HAMPSHIRE,  1917.  (i)  (S)  Education  equivalent  to 
public  high  school;  (2)  (S)  four  years'  accounting  experience  or 
instruction;  (3)  (S)  examination  in  four  subjects;  (4)  (S)  per- 
mitted to  holder  of  C.  P.  A.  certificate  for  three  years. 

ALABAMA,  1919.  (i)  (R)  Must  have  completed  a  high  school 
course  or  its  equivalent;  (2)  (R)  one  year's  experience  in  the  of- 
fice of  a  practicing  public  accountant  or  three  years'  practical  expe- 
rience;  (3)  (S)  examination  in  four  subjects;  (4)  (S)  certificate 
of  registration  permitted. 

ARIZONA,  1919.  (i)  (S)  Graduate  of  high  school  with  four 
year  course  or  an  equivalent  education;  (2)  (S)  three  years'  ac- 
counting experience;  (3)  (S)  examination  in  four  subjects;  (4) 
(S)  certificate  of  registration  permitted. 


MICHIGAN  ASSOCIATION 

OF 

CERTIFIED  PUBLIC 
ACCOUNTANTS 


MICHIGAN  C.  P.  A.  MANUAL  249 

MICHIGAN  ASSOCIATION   OF 
CERTIFIED  PUBLIC  ACCOUNTANTS 

Constitution 

ARTICLE 

Xame I 

Objects  of  the  Association     ......  ]I 

Membership,  Classes,  Qualifications,  and  Elections   .          .  Ill 

Certificate  of  Membership     .          .          .          .                    .  IV 

Directors,  Officers,  and  Committees       ....  V 

Election  of  Directors  and  Officers   .....  VI 

Seal               . VII 

Amendments          ........  VIII 

CONSTITUTION 

ARTICLE  I 
NAME: 

SECTION  i.     The  name  of  this  Association  shall  be  ''The  Mich- 
igan Association  of  Certified  Public  Accountants." 

ARTICLE  II 

OBJECTS 

SECTION  i.     The  objects  of  this  Association  are : 

(a)  To  unite  in  one  society  all  accountants  practicing  in  the 
State  of  Michigan  who  are  holders  of  Michigan  Certified  Public 
Accountant  certificates  or  of    Certified  Public    Accountant  certifi- 
cates of  any  other  State  in  the  United  States,  of  equal  standing  with 
that  given  by  the  State  of  Michigan,  and  all  other  accountants  who 
hold  degrees  given  in  foreign  countries,  the  standard  of  which  shall 
be  equal  to  that  given  by  the  State  of  Michigan. 

(b)  To  urge  and  assist  in  the  enforcement  of  the  state  law 
providing  for  the  granting  of   Certified  Public  Accountant  certifi- 
cates in  the  State  of  Michigan. 

(c)  To  encourage  the  proper  training  of  persons  who  desire 
to  become  Certified  Public  Accountants. 

( (1 )     To  promote  the  study  of  law  appertaining  to  accounts. 

(e)  To  secure  the  proper  recognition  of  the  practice  of  account- 
ancy as  a  profession. 

(f)  To  maintain  among  the  members  of  the  profession  a  high 
standard  of  professional  ethics.  . 


250  MICHIGAN  C.  P.  ,*.  MANUAL 

ARTICLE  III 

MEMBERS,    CLASSES,    QUALIFICATIONS,    AND    ELECTIONS 

SECTION  i.  The  membership  of  this  Association  shall  consist  of 
two  classes,  Fellows  and  Honorary. 

SECTION  2.  Fellows  shall  be  those  elected  to  membership  from 
the  following : 

(a)  Accountants,  residents  of  the  State  of  Michigan,  who  have 
obtained  and  hold  a  Certified  Public  Accountant   certificate  duly 
issued  to  them  by  the  State  of  Michigan. 

(b)  Accountants,  residents  of  the  State  of  Michigan,  holding  a 
Certified  Public  Accountant  certificate  from  any  other  state  in  the 
United  States,  which  has  been  recognized  by  the  State  Board  of 
Accountancy  of  equal  standing  with  the  Certified  Public  Accountant 
certificate  of  the  State  of  Michigan. 

(c)  Accountants,  residents  of  the  State  of  Michigan,  holding 
degrees  given  in  foreign  countries,  which  have  been  recognized  by 
the  State  Board  of  Accountancy,  the  standard  of  which  shall  be 
equal  to  the  Certified   Public  Accountant  certificate  given  by  the 
State  of  Michigan. 

SECTION  3.  The  Association,  by  unanimous  vote  of  the  mem- 
bers present  at  any  regular  meeting,  on  nomination  made  at  a  pre- 
vious meeting  may  confer  honorary  membership  on  those  Attorneys 
who  may  be  appointed  by  the  Governor  of  Michigan  to  serve  on  the 
Board  of  Accountancy,  or  on  any  other  persons  who  by  their  stand- 
ing in  this  state  or  by  their  active  interest  in  the  promotion  of  the 
objects  of  the  profession  may  be  considered  as  entitled  to  receive 
such  honor. 

SECTION  4.  (a)  Application  for  membership  must  be  made  on 
blanks  furnished  by  the  Association  and  must  be  endorsed  by  two 
Fellows. 

(b)  Application  must  be  accompanied  by  the  admission  fee  as 
hereinafter  provided  which  will  be  returned  in  case  the  applicant 
fails  to  properly  qualify  under  the  Constitution  and  By-Laws. 

(c)  The   Secretary  shall  mail  to  each  member  the  names  of 
applicants,  their  addresses  and  the  names  of  the  endorsers. 

(d)  If  any  member  shall  make  a  written  objection  to  the  elec- 
tion of  any  applicant  the  secretary  shall  immediately  notify  the 
membership  committee  and  they  shall  investigate  and  report  their 
findings  at  the  next  meeting. 


MICHIGAN  C.  P.  A.  MANUAL  251 

(e)  Election  to  membership  shall  be  by  ballot  and  shall  not 
take  place  unless  thirty  days  have  elapsed  since  the  notices  of  appli- 
cation were  mailed.  A  two-thirds  affirmative  vote  of  members 
present  shall  be  necessary  to  elect. 


ARTICLE  IV 

CERTIFICATE  OF  MEMBERSHIP 

SECTION  i.  Upon  admission  to  membership  as  a  Fellow  of  this 
Association,  every  member  shall  be  entitled  to  a  certificate  of  mem- 
bership therein  and  the  members  so  receiving  such  certificates  shall 
agree  in  writing  prior  to  receipt  of  such  certificates,  to  the  surrender 
of  same  to  the  Association  in  the  event  of  their  withdrawal  there- 
from or  their  membership  otherwise  ceasing. 


ARTICLE  V 

DIRECTORS,   OFFICERS,   AND   COMMITTEES 

iN  i.  The  Board  of  Directors  shall  be  composed  of  five 
members  who  shall  be  members  of  the  Association,  and  who  shall 
be  holders  of  Certified  Public  Accountant  certificates  granted  by 
the  State  of  Michigan. 

SECTION  2.     The  officers  shall  be  as  follows : 

A  President,  a  Vice-President,  a  Secretary  and  a  Treasurer,  all 
of  whom  shall  be  Fellows  and  who  shall  be  members  of  the  Board 
of  Directors,  and  an  Auditor  who  shall  also  be  a  Fellow  and  who 
shall  not  be  a  member  of  the  Board  of  Directors. 

SECTION  3.  There  shall  be  five  standing  committees : 
Committee  of  Membership;  Committee  on  Education  and  Pub- 
licity ;  Committee  on  Entertainment ;  Committee  on  Legislation,  and 
Committee  on  Ethics.  These  Committees,  with  the  exception  of  the 
Committees  on  Ethics  and  Membership,  shall  be  appointed  by  the 
Board  of  Directors  at  its  first  meeting  after  the  annual  election. 
The  Board  of  Directors  shall  constitute  the  Committees  on  Member- 
ship and  Ethics  except  as  may  be  provided  in  the  By-Laws. 

SECTION  4.  Each  committee  with  the  exception  of  the  Commit- 
tees on  Membership  and  Ethics  will  consist  of  three  Fellows  of  this 
Association.  A  majority  of  each  committee  will  constitute  a  quo- 
rum. 


2.52  MICHIGAN  C.  P.  A.  MANUAL 

ARTICLE  VI 

ELECTION  OF  DIRECTORS  AND  OFFICERS 

SECTION  i.  The  Directors  and  the  Auditor  shall  be  elected  at 
the  annual  meeting.  They  shall  hold  office  for  a  term  of  one  year 
and  until  their  successors  are  chosen.  In  case  of  a  vacancy  in  the 
Board  same  shall  be  filled  by  election  at  the  next  regular  meeting. 
All  elections  shall  be  conducted  as  hereinafter  provided  in  the  By- 
Laws  of  this  Association. 

SECTION  2.  The  President,  Vice-President,  Secretary  and 
Treasurer  shall  be  elected  by  the  Board  of  Directors  from  their  own 
number  and  shall  hold  office  until  the  next  annual  meeting  and  until 
their  successors  are  elected. 

ARTICLE  VII 

SEAL 

SECTION  i.  The  Corporate  Seal  of  the  Association  shall  be 
circular  in  form,  having  within  the  rim  the  inscription,  "The  Mich- 
igan Association  of  Certified  Public  Accountants,"  and  displayed  in 
the  center  the  words,  ''Incorporated  1901 — Amended  1905." 

ARTICLE  VIII 

AMENDMENTS 

SECTION  i.  Amendments  to  the  Constitution  and  By-Laws  shall 
be  made  only  at  a  regular  meeting  and  by  a  majority  vote  of  all 
members  of  the  Association.  A  copy  of  the  proposition  to  alter, 
amend,  or  add  shall  be  embodied  in  the  call  for  the  next  regular 
meeting  at  which  such  amendment  is  to  be  acted  upon. 


By-Laws 

Duties  of  Directors,  Officers,  and  Committees 
Meetings,  Quorum,  etc.  .... 
Order  of  Business  ........ 

Elections IV 

Initiation  Fees  and  Dues     .......         V 

Expulsion  from  Membership       ......       VI 

Rules  of  Order— Roberts  .  VII 


MICHIGAN  C.  P.  A.  MAX  U.I  I.  253 

BY-LAWS 
ARTICLE  I 

DUTIES   OF   DIRECTORS,  OFFICERS,   AND   COMMITTEES 

SECTION  i.  It  shall  be  the  duty  of  the  Board  of  Directors  to 
conduct  the  affairs  of  the  Association.  They  shall  have  charge  of 
all  property  of  the  society,  and  shall  authorize  all  expenditures.  The 
Board  shall  keep  a  record  "of  its  proceedings  and  make  an  annual 
written  report  to  the  Association.  Meetings  of  the  Board  shall  be 
held  at  the  call  of  the  President  or  Secretary  and  three  shall  con- 
stitute a  quorum. 

SECTION  2.  The  Board  of  Directors  shall  elect  from  their  num- 
ber a  President,  a  Vice-President,  a  Secretary  and  a  Treasurer, 
who  shall  hold  ofnce  until  the  next  annual  meeting  and  until  their 
successors  are  elected. 

SECTION  3.  It  shall  be  the  duty  of  the  President  to  preside  at 
all  meetings  and  to  enforce  all  laws  and  regulations  relating  to  the 
administration  of  the  Association.  He  shall  call  special  meetings 
on  the  written  request  of  five  Fellows  of  the  Association. 

SECTION  4.  In  the  absence  of  the  President,  the  Vice-President 
shall  perform  such  duties  as  devolve  upon  the  President. 

SECTION  5.  In  the  event  of  the  absence  of  the  President  and 
Vice- 1  'resident  from  any  meeting  of  the  Association,  or  Board  of 
Directors,  one  of  the  members  present  shall  preside. 

SECTION  6.  The  Secretary  shall  keep  complete  records  of  all 
meetings  of  the  Association  and  of  the  Board  of  Directors,  and  shall 
have  custody  of  the  corporate  seal.  He  shall  give  at  least  twenty- 
four  hours  notice  by  mail  of  all  meetings  of  the  Board  of  Directors, 
and  five  days  notice  by  mail  of  all  meetings  of  the  Association. 
When  applications  for  membership  are  received,  he  shall  mail  to 
each  member  the  names  of  applicants,  their  addresses,  and  the  names 
of  the  endorsers.  He  shall  conduct  such  other  correspondence  as 
may  be  necessary,  keep  a  complete  record  of  members  and  addresses, 
a  register  of  certificates,  and  attend  to  all  other  duties  usually  per- 
taining to  the  office. 

SECTION  /.  The  Treasurer  shall  receive  all  moneys  payable  to 
the  Association  and  disburse  the  same  only  on  vouchers  approved 
by  the  President,  after  the  bills  have  been  allowed  by  the  Board 
of  Directors.  He  shall  render  reports  to  the  Association  at  each 
regular  meeting. 


254 


MICHIGAN  C.  P.  A.  MANUAL 


SECTION  8.  The  Auditor  shall  make  an  audit  of  the  books  of 
account  and  of  all  vouchers  for  the  year.  Such  books,  vouchers  and 
other  documents  shall  be  submitted  to  the  Auditor  at  least  six  days 
before  the  annual  meeting,  and  the  Auditor  shall  file  a  written  report 
with  the  Board  of  Directors  before  the  date  of  such  meeting. 

SECTION  9.  The  Committee  on  Membership  shall  inquire  into 
the  eligibility  of  each  applicant  proposed  for  membership,  and  shall 
report  on  same  at  the  next  meeting. 

SECTION  10.  The  Committee  on  Legislation  shall  keep  the  Asso- 
ciation informed  on  all  proposed  legislation  affecting  accountancy. 

SECTION  n.  The  Committee  on  Education  and  Publicity  shall 
encourage  and  promote  the  cause  of  accountancy  education  by  what- 
ever means  may  be  available  and  secure  proper  publicity  to  further 
generally  the  interests  of  public  accountancy. 

SECTION  12.  The  Committee  on  Entertainment  shall  arrange 
for  the  literary  and  entertainment  part  of  all  meetings. 

SECTION  13.  The  Committee  on  Ethics  shall  investigate  any 
complaint  made  against  any  member  or  members  alleging-  a  breach 
of  the  ethics  of  the  profession,  and  shall  report  on  their  findings  at 
the  next  regular  meeting  of  the  Association,  provided  that  should 
any  complaint  be  lodged  against  a  member  or  members  of  this  Com- 
mittee, such  members  shall  not  serve  on  the  Committee  on  Ethics 
while  such  complaint  is  being  investigated,  but  the  remaining  mem- 
bers of  the  Committee  shall  appoint  another  member  or  members  of 
this  Association  to  serve  temporarily  on  this  Committee  until  such 
complaint  has  been  investigated  and  report  made. 

ARTICLE  II 

MEETINGS 

SECTION  i.  Regular  meetings  of  the  Association  shall  be  held 
in  each  month  in  the  year  except  July  and  August,  on  a  day  set  by 
the  Board  of  Directors.  Notices  of  each  meeting  shall  be  sent  to 
each  member  not  less  than  five  days  prior  to  the  meeting. 

SECTION  2.  Special  meetings  may  be  called  by  the  President, 
or  Secretary,  at  any  time,  and  shall  be  called  on  the  written  request 
of  five  Fellows.  No  business  other  than  that  for  which  such  meet- 
ings were  called  shall  be  transacted.  Notices  to  each  member  shall 
be  sent  out  at  least  five  days  prior  to  the  meeting. 

SECTION  3.  The  annual  meeting  of  the  Association  shall  take 
place  on  the  third  Tuesday  of  September  in  each  year.  Notice  shall 
be  sent  to  each  member  not  less  than  five  days  prior  to  the  meeting. 


MICHIGAN  C.  P.  A.  MANUAL  255 

SECTION  4.  A  meeting  of  the  Board  of  Directors  may  be  called 
by  the  President  or  Secretary  at  any  time.  Two  regular  meetings 
shall  be  held,  one  in  September,  immediately  following  the  unmiril 
meeting  for  the  purpose  of  electing  officers,  and  another  immediately 
preceding  or  following  the  regular  meeting  in  March  each  year. 

SECTION  5.  All  committees  shall  be  subject  to  call  of  their  re- 
spective chairmen,  and  shall  meet  to  perform  the  duties  for  which 
they  were  appointed  or  act  upon  such  matters  as  may  be  referred 
to  them. 

SECTION  6.  At  any  meeting  of  the  Association  a  majority  of  the 
Fellows  resident  in  the  State  of  Michigan  shall  constitute  a  quorum 
to  transact  any  business  properly  presented. 

SECTION  7.  Three  directors  shall  constitute  a  quorum  of  the 
Board  of  Directors,  and  a  majority  of  any  committee  shall  constitute 
a  quorum  of  such  committee. 


ARTICLE  III 


ORDER  OF  BUSINESS 

SECTION  i.     The  order  of  business  at  all  regular  meetings  shall 
be  as  follows : 

1.  Roll  Call 

2.  Reading  of  Minutes 

3.  Board  of  Directors'  Report 

4.  Treasurer's  Report 

5.  Standing  Committees'  Reports 

6.  Election  of  Members 

7.  Special  Committees'  Reports 

8.  Unfinished  Business 

9.  Communications 

10.  New  Business 

1 1 .  Program 

SECTION  2.     The  order  of  business  at  the  annual  meeting  shall 
be  in  addition  to  that  in  Section  i  as  follows : 

12.  Reading  of  Annual  Reports 

13.  Election  of  Board  of  Directors 

14.  Election  of  Auditor 


256  MICHIGAN  C.  P.  A.  MANUAL 

ARTICLE  IV 
EJECTIONS 

SECTION  i.     Elections  shall  be  held  at  the  annual  meeting  of  the 
Association,  for  the  following : 
Five  Directors 
One  Auditor 

SECTION  2.  Elections  shall  be  by  ballot.  Two  tellers  shall  be 
appointed  to  receive  and  canvas  the  ballots  as  cast,  and  announce 
the  result  to  the  presiding  officer,  who  thereupon  shall  declare  the 
Fellows  receiving  the  majority  of  the  votes  cast  elected  to  the  re- 
spective offices. 

SECTION  3.  In  case  of  no  choice  for  any  office  or  offices  on  the 
first  ballot,  succeeding  ballots  shall  at  once  take  place  until  a  choice 
is  made  for  such  office  or  offices. 

SECTION  4.  Any  member  who  is  three  months  in  arrears  for 
any  dues,  assessments  or  other  sums  owed  by  him  to  the  Associ- 
ation, shall  not  be  entitled  to  vote,  or  be  eligible  for  any  office  or 
committee  assignment. 

SECTION  5.  Any  Fellow  unable  to  be  present  at  any  meeting 
may  vote  upon  any  election  or  question  which  is  submitted  at  that 
meeting  by  mailing  his  proxy  to  the  Secretary,  or  to  any  other  mem- 
ber of  the  Association. 

SECTION  6.  Honorary  Members  shall  not  be  entitled  to  vote  or 
be  eligible  for  any  office  or  committee  assignment. 

ARTICLE  V 

INITIATION  FEES  AND  DUES 

SECTION  I.  There  shall  be  an  initiation  fee  of  ten  dollars  col- 
lected from  each  Fellow  when  application  for  membership  is  made, 

SECTION  2.  The  annual  dues  to  be  collected  shall  be  ten  dol- 
lars from  each  Fellow. 

SECTION  3.  Dues  shall  be  payable  annually  in  advance  on  Octo- 
ber ist  of  each  year,  or  at  the  date  of  a  member's  election  to  mem- 
bership. Until  such  payment  of  dues  at  election  to  membership,  no 
certificate  shall  be  issued,  and  such  dues  shall  be  apportioned  to 
September  3Oth  at  the  rate  per  meeting  month  of  $1.00. 

SECTION  4.  The  Association  may  by  a  majority  vote  of  all  Fel- 
laws  levy  membership  assessments  of  not  to  exceed  in  any  one  year 
the  amount  of  the  yearly  dues. 

SECTION  5.  No  Fellow  shall  be  permitted  to  vote  at  any  meet- 
ing of  the  Association  who  is  three  months  in  arrears  for  dues, 
assessments  or  other  sums  owed  by  him  to  the  society. 


MICHIGAN  C.  P.  A.  MANUAL  257 

ARTICLE  VI 

BXPUtSION    l;ko.M    AlK.Mi'.KkSUIP 

SKCTIOX  i.  (a)  If  any  member  of  the  Association  shall  be  de- 
clared by  a  court  of  competent  jurisdiction  to  have  committed  any 
fraud,  or  shall  be  convicted  of  felony  or  misdemeanor,  or 

(.In  If  any  member  is  held  by  the  Board  of  Directors  on  the 
written  complaint  of  any  person  to  have  been  guilty  of  any  act  or 
default  discreditable  to  the  profession,  or 

(c)  If  any  member  shall  fail  to  pay  any  dues,  assessments  or 
other  sums  owed  by  him  to  the  Association  within  three  months 
after  such  debt  has  become  due, 

he  renders  himself  liable  to  be  expelled  from  membership  by  a 
resolution  of  the  Board  of  Directors  presented  to  the  Association 
at  any  regular  or  special  meeting. 

SI.CTIOX  2.  Due  notice  shall  be  mailed  to  the  accused  member 
by  the  Secretary  at  least  five  days  prior  to  the  meeting. 

SIXTIOX  3.  A  two-thirds  vote  of  the  members  present  shall  be 
necessary  to  a  decision. 

SKCTIOX  4.  Upon  the  expulsion  of  any  member  for  whatever 
cause,  the  Secretary  shall  for  the  Beard  of  Directors,  demand  the 
return  of  the  certificate  of  membership  as  provided  by  Article  IV  of 
the  Constitution. 

ARTICLE  VII 

RULES   OF   GRUKR 

Si-X'Tiox  i.  The  rules  of  parlimentary  procedure  as  laid  down 
in  "Robert's  Rules  of  Order"  shall  govern  at  all  meetings  of  the 
Association. 

MICHIGAN  ASSOCIATION  OF 
CERTIFIED    PUBLIC   ACCOUNTANTS 

IAXTARV  i,  ig20 

FELLOWS 

Ashman.  Evan.  T Detroit,  Mich. 

At '.\iiison,  ( itorge  X'.-    Detroit,  Mich. 

Ik-mu'tt.  Robert  J.  .  .  •  • Philadelphia,  Pa. 

Beck,  Howard  C' Baltimore,  Mel. 

lUanrharil,  ( ilynn  F Grand  Rapids,  Mich. 

I'.onthmn.  \Yilliam  I) •  • Detroit,  Mich. 

I'ootlu-  J.  T.tr   •  • Detroit,  Mich. 

Mullock.  Cyril  X Detroit,  Mich. 

r.nriH-11,  Lortn/o  1) •• Detroit,  Mich. 

Dadson,  Elclon  E Detroit,  Alich. 

P.utler,   William    •  • Detroit,   Mich. 

Kvans.  Thomas  H Detroit,  Mich. 

R-uldis.  Thomas  M •  • Detroit,  Mich. 


258  MICHIGAN  C.  P.  A.  MANUAL 

Pick,  H.  William Grand  Rapids,  Mich. 

Foy,  Arphaxed Detroit,    Mich. 

Gibbs,  George  R Detroit,    Mich. 

Hawkins,  Norval  A • Detroit,    Mich. 

Hollis,  Ralph  T Detroit,    Mich. 

Jerome,  John  J Lansing,  Mich. 

Kerr,  Percy  A Detroit,    Mich. 

Leslie,  William   • Detroit,    Mich. 

LaBonte,  Frank  G Detroit,    Mich. 

McDonald,  John  A Detroit,    Mich. 

Miller,  Ralph  C Detroit,    Mich. 

Morton,  Fred  W Detroit,    Mich. 

Neff,  C.  Earle '..... Detroit,    Mich. 

Palmer,  Leslie  E New  York,  N.  Y. 

Porte,  T.  L.  Whitford   Detroit,    Mich. 

Ross,  William  F.  G Detroit,   Mich. 

Rowland,  William  C Detroit,    Mich. 

Ruple,  Harry Saginaw,  Mich. 

Shaefer,  Francis  M Lansing,  Mich. 

Shultus,  Walter  H Grand  Rapids,   Mich. 

Smith,  David Detroit,    Mich. 

Springer,  Durand  W Ann  Arbor,  Mich. 

Stevenson,  Richard  A Detroit,    Mich. 

Steff ens,  Henry,  Jr Detroit,    Mich. 

Sunley,  William  T.,  Jr Detroit,    Mich. 

Staub,  E.  Elmer   Detroit,    Mich. 

Thayer,  Arthur  F Detroit,    Mich. 

Thompson,  Melville  W.  . New  York,  N.  Y. 

Tilton,  Frederic  A Detroit,    Mich. 

Tringham,  William    Detroit,    Mich. 

Turner,  Robert  L Detroit,    Mich. 

Whitlock,  Christopher  C Detroit,    Mich. 

Wixson,  Fred Detroit,    Mich. 

Wolfe,  Richard  H Detroit,    Mich. 

HONORARY 

Bland,  J.  Edward Detroit,    Mich. 

Broomfield,  Archibald  Detroit,    Mich. 

Byrns,    Charles   J Ishpeming,  Mich. 

Denby,  Edwin   Detroit,    Mich. 

Ferris,  Woodbridge  N Big  Rapids,  Mich. 

Hart,  Ray   Midland,  Mich. 

Peek,  Archibald  J Jackson,   Mich. 

Sleeper,  Albert  E Bad  Axe,  Mich. 

Warner,  Fred  M Farmington,  Mich. 

Woods,  Nicholas  W Detroit,    Mich. 

Zimmerman,  Henry  M Pontiac,   Mich. 


MICHIGAN  C.  P.  A.  MANUAL  259 


THE  MICHIGAN  CERTIFIED  PUBLIC  ACCOUNTANTS 
IN  WAR  ACTIVITIES 

All  the  Michigan  certified  public  accountants  were  active  sup- 
porters of  the  government  in  some  of  the  many  ways  which  were 
presented  to  citizens  generally.  Many  of  the  men  rendered  army 
service  proper.  Others  took  on  specific  civilian  tasks  which  were 
officially  recognized  by  the  government.  Some  were  connected  with 
organizations  doing  army  contract  work  for  the  government.  The 
remainder  were  active  members  of  one  or  more  of  the  various  com- 
mittees which  war  conditions  made  necessary. 

The  following  is  a  statement  of  the  specific  lines  in  which  the 
members  of  the  first  two  groups  were  engaged : 

Beck,  Howard  C. — Prepared  monograph  "A  Statement  of  Accounts  for  Re- 
tail Coal  Dealers''  for  the  United  States  Fuel  Administration. 

Bennett,  Robert  J. — Chief  Accountant,  Division  of  Auditing  for  Pennsylva- 
nia, United  States  Food  Administration;  Auditor,  Southeastern  Penn- 
sylvania Chapter  American  Red  Cross;  Auditor,  Army  and  Navy  De- 
partment Brotherhood  of  St.  Andrew,  Episcopal  Church;  Special  In- 
vestigator for  Federal  Trade  Commission  and  United  States  Fuel  Ad- 
ministration. 

Bonthron,  William  D. — Chairman  Auditing  Committee,  Executive  Liberty 
Loans  Committee  for  Detroit  and  Wayne  County. 

Burnell,  Lorenzo  D.- — (Lieutenant)  Cost  Accounting  Section,  Ordnance 
Department,  Washington;  (Captain)  Disbursing  Officer,  Ordnance  De- 
partment, American  Expeditionary  Forces. 

Butler,  Ernest  B. — Production  Expert,  Signal  Corps,  United  States  Army: 
Cost  Inspector,  Bureau  of  Supplies  and  Accounts,  Navy  Department. 

Butler,  WTilliam — (Major)  Infantry,  Canadian  Expeditionary  Forces  with 
service  in  Canada,  England,  Belgium  and  France,  July  1915  to  June 
1917;  District  Manager  of  Finance,  Finance  Division,  Bureau  of  Air- 
craft Production,  United  States  Army,  after  July  1917. 

Dowd,  Martin— Treasurer,  War  Camp  Funds,  Knights  of  Columbus,  Grand 
Rapids;  Cost  Accountant,  Ordnance  Department;  District  Examiner, 
Ordnance  Claims  Board. 

Evans,  Thomas  H. — Internal   Revenue  Agent. 

Goodrich,  George  C.— Quartermasters  Corps,  United  States  Army,  Camp 
Custer;  (Sergeant)  Finance  Division,  Headquarters  Detachment,  Mth 
Division,  United  States  Army. 

Gridley,  William  D.— Member  Michigan  State  Troops  during  period  of  war. 

Hawkins,  Norval  A. — Asistant  Chief,  Detroit  District,  Motors  Branch,  Di- 
rector of  Purchase,  Storage  and  Traffic. 


260  MICHIGAN  C.  P.  A.  MANUAL 

Hosmer,  Ansel  F. — Cost  Accountant,  Ordnance  Department,  General  Ad- 
ministration Bureau. 

LaBonte,  Frank  G. —  (Captain)  Headquarters  Troop,  I4th  Division,  United 
States  Army. 

Mortlock,  George  C. — Auditor,  Milling  Division,  United  States  Food  Ad- 
ministration; prepared  monographs  "Suggested  Accounting  System  for 
Wheat  Flour  Millers"  and  "Organization  of  the  Auditing  Department 
of  the  United  States  Food  Department." 

Neff,  C.  Earle — Accountant,  Cost  Accounting  Section,  Finance  Branch,  Ord- 
nance Department. 

Rowland,  William  C. —  (Infantry  Sergeant)  Camp  Personnel  Office,  Camp 
Custer;  prepared  monograph  "Outline  of  Mustering  Procedure"  used 
as  text  at  Training  School  for  Personnel  Officers;  transferred  to  Pro- 
motion and  Assignment  Section,  Commissioned  Personnel  Branch,  Op- 
erations Division,  General  Staff,  Washington;  prepared  office  system 
for  handling  statistics  in  that  Section. 

Ruple,  Harry — Investigator,  United   States  Grain   Corporation. 

Seidman,  Frank  E. — Supervising  Accountant,  Signal  Corps,  United  States 
Army;  Overhead  Supervisor,  Bureau  of  Aircraft  Production. 

Shaefer,  Francis  M. —  (First  Class  Sergeant)  Cost  Accountant,  Bureau  of 
Aircraft  Production,  United  States  Army. 

Smith,  Charles  A. — Secretary  and  Assistant  to  the  Director,  Bureau  of 
Trusts,  Alien  Property  Custodian,  Washington;  Special  Accountant,  Au- 
thorizations and  Appropriations,  Auditing  Division,  Emergency  Fleet 
Corporation. 

Smith,  David — Auditor,  Post  Exchange,  United  States  Hospital. 

Springer,  Durand  W.— Educational  Director,  Army  Y.  M.  C.  A.,  Camp  Cus- 
ter; Educational  Director,  Army  Y.  M.  C.  A.,  Central  War  Depart- 
ment; Special  Agent,  Commercial  Education,  Division  of  Rehabilita- 
tion, Federal  Board  for  Vocational  Education,  Washington. 

Stewart,  Charles  W. — Chief  Auditor,  Division  of  Enforcement,  United 
States  Food  Administration. 

Stradley,  Edward  M.1 — Internal  Revenue  Agent. 

Sunley,  William  T.  Jr. — Auditor,  Detroit  Chapter,  American  Red  Cross. 

Suter,,  Fred  A. — Drill  Master  6gth  Regiment  Armory,   New  York. 

Thompson,  Melville  W. —  (Lieutenant  Colonel)  United  States  Army;  Com- 
manding Officer,  Finance  Division,  Finance  Department  of  Equipment 
Division;  transferrerd  to  Administration  Division;  Member,  President 
and  Governor,  War  Credits  Board. 

Turner,  Robert  L. — Accountant,  Cost  Accounting  Section,  Ordnance  De- 
partment. 

Whitlock,  Charles  C. —  (Second  Lieutenant)  i6oth  Depot  Brigade,  Camp 
Custer;  (First  Lieutenant)  loth  Infantry,  United  States  Army. 


VC  35355 


